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Do Government Subsidies Stabilize Or Destabilize Agricultural Markets?

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  • AKIO MATSUMOTO

Abstract

This study examines the effect of government intervention on output fluctuations in agricultural markets. It uses a simple model of supply and demand (i.e., a cobweb model), in which the government supports producers for agricultural goods in the form of subsidies. Within this framework, this study demonstrates that government intervention is a two‐edged sword: it not only prevents the output dynamics from explosive oscillations but also causes highly irregular and persistent fluctuations somewhat like the one observed in the actual data.

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  • Akio Matsumoto, 1998. "Do Government Subsidies Stabilize Or Destabilize Agricultural Markets?," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 452-466, October.
    • Handle: RePEc:bla:coecpo:v:16:y:1998:i:4:p:452-466
    DOI: 10.1111/j.1465-7287.1998.tb00533.x
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    1. Jensen, Roderick V. & Urban, Robin, 1984. "Chaotic price behavior in a non-linear cobweb model," Economics Letters, Elsevier, vol. 15(3-4), pages 235-240.
    2. Mordecai Ezekiel, 1938. "The Cobweb Theorem," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 52(2), pages 255-280.
    3. Day, Richard H. & Shafer, Wayne, 1987. "Ergodic fluctuations in deterministic economic models," Journal of Economic Behavior & Organization, Elsevier, vol. 8(3), pages 339-361, September.
    4. Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August.
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    Cited by:

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