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A Risk Generated Non-Linear Cobweb

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  • Boussard, Jean-Marc

Abstract

With risk averse producers, the traditional cobweb model becomes non-linear. The currently produced quantity is an homographic function of previous years' quantities. This may result in the market generating chaotic price and quantity series, especially if demand is rigid. Hedging facilities are unable to reduce the magnitude of fluctuations, which are socially detrimental, especially from the consumers' point of view. This justifies public intervention in markets such as those for staple food commodities or health care.

Suggested Citation

  • Boussard, Jean-Marc, 1997. "A Risk Generated Non-Linear Cobweb," 1997 Occasional Paper Series No. 7 198193, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaaeo7:198193
    DOI: 10.22004/ag.econ.198193
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    References listed on IDEAS

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    2. P. B. R. Hazell & P. L. Scandizzo, 1977. "Farmers' Expectations, Risk Aversion, and Market Equilibrium under Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(1), pages 204-209.
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    4. James A. Chalfant & Robert N. Collender & Shankar Subramanian, 1990. "The Mean and Variance of the Mean-Variance Decision Rule," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(4), pages 966-974.
    5. Frederick V. Waugh, 1944. "Does the Consumer Benefit from Price Instability?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(4), pages 602-614.
    6. Mordecai Ezekiel, 1938. "The Cobweb Theorem," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 52(2), pages 255-280.
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    Risk and Uncertainty;

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