Working Papers in Economics, Department of Economics, University of Bergen
Sjur Didrik Flåm
On Stabilizing or Deregulating Food Prices
(), Ivar Gaasland
() and Erling Vårdal
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
Keywords: Keywords: price stabilization; cobwebs; convergence; stochastic approximation.; (follow links to similar papers)
JEL-Codes: C63; D60; L51; Q11; (follow links to similar papers)
28 pages, June 15, 2006
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