Producers' Price Expectations and the Size of the Welfare Gains from Price Stabilisation
This paper uses a simulation model to measure the size of the social welfare gains from price stabilisation within the general setting of a non-linear, multiplicative risk and lagged expectations model of the market. The size of the gains is found to be relatively small when producers plan on the basis of rational expectations, but it can be quite substantial for other types of expectations behaviour, including those commonly assumed in empirical supply analysis. We conclude that, in many cases, improved market information services may more economically provide the substantial part of the social benefits of price stabilisation.
Volume (Year): 51 (1983)
Issue (Month): 02 (August)
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- P. B. R. Hazell & P. L. Scandizzo, 1974. "Competitive Demand Structures under Risk in Agricultural Linear Programming Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(2), pages 235-244.
- Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-597, September.
- Benton F. Massell, 1969. "Price Stabilization and Welfare," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 284-298.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Feder, Gershon, 1977. "The impact of uncertainty in a class of objective functions," Journal of Economic Theory, Elsevier, vol. 16(2), pages 504-512, December.
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