Price risk management instruments in agricultural and other unstable markets
AbstractMost economists congregate on the idea that commodity price instability should be reduced. Since at least one century a variety of instruments have been designed to that end, without much success, especially for agricultural commodities. The failure might be a consequence of the fact that most policies have neglected the reason for price fluctuations. Commodity price fluctuations are endogenous, caused by the market equilibrium local dynamic instability. It means that any measure relying on the “law of large numbers” is likely to be inoperative. In addition, because, in agriculture, the production function is homogenous and of degree one, any effective stabilisation leads to over production. Only production quotas can cope with these difficulties. They may be designed in such a way as to maintain the essential feature of market equilibrium, i.e. marginal cost equating price.
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Bibliographic InfoPaper provided by EconWPA in its series Risk and Insurance with number 0505001.
Length: 10 pages
Date of creation: 05 May 2005
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Crop insurance agriculture commodity price stabilisation;
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- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
- Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
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This paper has been announced in the following NEP Reports:
- NEP-AGR-2005-05-07 (Agricultural Economics)
- NEP-ALL-2005-05-07 (All new papers)
- NEP-FIN-2005-05-07 (Finance)
- NEP-RMG-2005-05-07 (Risk Management)
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- Sophie Mitra & Jean-Marc Boussard, 2008. "Storage and the Volatility of Agricultural Prices: A Model of Endogenous Fluctuations," Fordham Economics Discussion Paper Series dp2008-11, Fordham University, Department of Economics.
- Boussard, Jean-Marc, 2007. "The future of the European Common Agricultural Policy : a new philosopy ?," Miscellaneous Papers 44423, Agecon Search.
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