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How Price Instability Complicates the Analysis of Price Supports

Published online by Cambridge University Press:  10 May 2017

Bruce Gardner
Bruce Gardner*
Affiliation:
University of Maryland
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Extract

Agricultural economists often invoke instability, risk, and uncertainty as central concepts in understanding farm policy. Yet in analyzing policy alternatives we typically use comparative static methods that shift supply and demand curves and find new equilibria without reference to uncertainty in the economy or economic behavior other than profit-maximizing (risk neutral). This is true even in the most complex models being used to analyze 1985 farm bill alternatives, such as Johnson, et al. (1985). The aim of this paper is to understand this combination of simultaneous emphasis and neglect of risk considerations in policy analysis, and to assess costs of ignoring risk. The discussion consists of two parts, the first on normative considerations and the second on positive economics and risk.

Type
Research Article
Information
Northeastern Journal of Agricultural and Resource Economics , Volume 14 , Issue 2 , October 1985 , pp. 113 - 119
Copyright
Copyright © 1985 Northeastern Agricultural and Resource Economics Association 

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References

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