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In Defense Of Fence To Fence: Can The Backward Bending Supply Curve Exist?

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  • Just, Richard E.
  • Zilberman, David

Abstract

Politicians dealing with the "farm problem" sometimes lament that output increases when prices go up and when prices go down. This article presents three possible theoretical explanations. In the first, farmers deplete soil (over-farm) when prices are low and imperfect capital markets prevent borrowing. In the second, farmers in financial stress (low prices) allocate more family labor to farming to meet debt-repayment constraints. In the third, wealth held in farmland tends to decline as prices decline. With decreasing absolute risk aversion, this increases risk aversion which, in extreme cases, causes negative supply response.

Suggested Citation

  • Just, Richard E. & Zilberman, David, 1992. "In Defense Of Fence To Fence: Can The Backward Bending Supply Curve Exist?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(2), pages 1-9, December.
    • Handle: RePEc:ags:jlaare:30945
    DOI: 10.22004/ag.econ.30945
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    References listed on IDEAS

    as
    1. Paarlberg, Don, 1988. "The Backward-Bending Supply Curve: A Myth That Persists," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 3(1), pages 1-2.
    2. Just, Richard E., 1974. "Econometric Analysis of Production Decisions with Government Intervention: The Case of the California Field Crops," Monographs, University of California, Davis, Giannini Foundation, number 251950, December.
    3. Frohberg, Klaus, 1985. "International Institute for Applied Systems Analysis Basic Linked System World Agricultural Model," 1985: Agricultural Trade Modeling - The State of Practice and Research Issues Meeting, December 1985, Vancouver, British Columbia, Canada 50639, International Agricultural Trade Research Consortium.
    4. Howard D. Leathers & Jean-Paul Chavas, 1986. "Farm Debt, Default, and Foreclosure: An Economic Rationale for Policy Action," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 828-837.
    5. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    6. Robison, Lindon J. & Barry, Peter J. & Burghardt, William G., 1987. "Borrowing Behavior Under Financial Stress By The Proprietary Firm: A Theoretical Analysis," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(2), pages 1-8, December.
    7. Turnovsky, Stephen J & Shalit, Haim & Schmitz, Andrew, 1980. "Consumer's Surplus, Price Instability, and Consumer Welfare," Econometrica, Econometric Society, vol. 48(1), pages 135-152, January.
    8. Just, Richard E & Zilberman, David, 1986. "Does the Law of Supply Hold under Uncertainty?," Economic Journal, Royal Economic Society, vol. 96(382), pages 514-524, June.
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    Cited by:

    1. Roel Jongeneel & Ana Gonzalez-Martinez, 2022. "EU Dairy after the Quota Abolition: Inelastic Asymmetric Price Responsiveness and Adverse Milk Supply during Crisis Time," Agriculture, MDPI, vol. 12(12), pages 1-16, November.

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    Keywords

    Farm Management;

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