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On Stabilizing or Deregulating Food Prices

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Abstract

This paper studies measurement of welfare e¤ects, transient and permanent, of stabilizing or deregulating prices in Cobweb-like settings. As in Cobweb-models, producers must commit inputs in face of uncertainty. Here, however, we consider producers who are concerned with adaptations of inputs rather than price predictions. This shift of emphasis reflects two things. First, since persistent randomness causes on-going price fluctuations, point predictions are of modest concern. Second, producers are likely to care more about profits than prices. Explored below are economic issues related to transitions between regulated and unregulated equilibrium. Our focus is on convergence, stability and welfare. The main motivation and the running example centers on agricultural commodities. The paper does, however, not review the case for or against market intervention. In stead it advocates and illustrates the use of tractable tools called stochastic approximation. These tools easily produce quantitative estimates to facilitate discussion of the pros and cons.

Suggested Citation

  • Flåm, Sjur Didrik & Gaasland, Ivar & Vårdal, Erling, 2006. "On Stabilizing or Deregulating Food Prices," Working Papers in Economics 08/06, University of Bergen, Department of Economics.
  • Handle: RePEc:hhs:bergec:2006_008
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    File URL: http://www.uib.no/filearchive/No.%2008-06.pdf
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    References listed on IDEAS

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    1. Miranda, Mario J & Helmberger, Peter G, 1988. "The Effects of Commodity Price Stabilization Programs," American Economic Review, American Economic Association, vol. 78(1), pages 46-58, March.
    2. Ermoliev, Yu. & Keyzer, M. A. & Norkin, V., 2000. "Global convergence of the stochastic tatonnement process," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 173-190, October.
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    Keywords

    Keywords: price stabilization; cobwebs; convergence; stochastic approximation.;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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