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In Defense Of Fence To Fence: Can The Backward Bending Supply Curve Exist?

Author

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  • Just, Richard E.
  • Zilberman, David

Abstract

Politicians dealing with the "farm problem" sometimes lament that output increases when prices go up and when prices go down. This article presents three possible theoretical explanations. In the first, farmers deplete soil (over-farm) when prices are low and imperfect capital markets prevent borrowing. In the second, farmers in financial stress (low prices) allocate more family labor to farming to meet debt-repayment constraints. In the third, wealth held in farmland tends to decline as prices decline. With decreasing absolute risk aversion, this increases risk aversion which, in extreme cases, causes negative supply response.

Suggested Citation

  • Just, Richard E. & Zilberman, David, 1992. "In Defense Of Fence To Fence: Can The Backward Bending Supply Curve Exist?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(2), pages 1-9, December.
  • Handle: RePEc:ags:jlaare:30945
    as

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    File URL: http://ageconsearch.umn.edu/record/30945/files/17020277.pdf
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    References listed on IDEAS

    as
    1. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    2. Just, Richard E & Zilberman, David, 1986. "Does the Law of Supply Hold under Uncertainty?," Economic Journal, Royal Economic Society, vol. 96(382), pages 514-524, June.
    3. Paarlberg, Don, 1988. "The Backward-Bending Supply Curve: A Myth That Persists," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 3(1), pages 1-2.
    4. Robison, Lindon J. & Barry, Peter J. & Burghardt, William G., 1987. "Borrowing Behavior Under Financial Stress By The Proprietary Firm: A Theoretical Analysis," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(2), pages 1-8, December.
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    Keywords

    Farm Management;

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