Welfare Losses in Disequilibrium Markets--An Empirical Illustration
Measures of partial welfare losses are derived for markets where the price may fail to equate demand and supply. The welfare loss is measured as the difference between the sum of consumer surplus and producer surplus when going from a disequilibrium regime to an equilibrium regime. A complication, and special feature, of the analysis is an assumption that the price is determined ex ante by the intersection of expected supply and demand. Ex post, however, both demand and supply are exposed to stochastic shocks. This means that since the price is fixed ex ante, the expected loss depends not only on deterministic demand supply shifts, but also on the distribution of the stochastic elements. The Swedish timber market is used as an empirical illustration. Copyright 1993 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 95 (1993)
Issue (Month): 2 ()
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