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Market Intervention Policies When Production Is Risky

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  • P. B. R. Hazell
  • P. L. Scandizzo

Abstract

The supplies of many agricultural commodities involve important production risks. In analyzing market intervention policies, these risks should enter the analysis as stochastic elements in the slope of the supply function and not just in the intercept term. This specification leads to the result that optimally distorted prices are more efficient for social welfare than competitive market equilibrium prices. Important gains in social welfare may be obtained with risky products through the appropriate use of production quotas and price stabilization schemes designed to optimally distort the market.

Suggested Citation

  • P. B. R. Hazell & P. L. Scandizzo, 1975. "Market Intervention Policies When Production Is Risky," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(4), pages 641-649.
    • Handle: RePEc:oup:ajagec:v:57:y:1975:i:4:p:641-649.
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    References listed on IDEAS

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    1. P. B. R. Hazell & P. L. Scandizzo, 1974. "Competitive Demand Structures under Risk in Agricultural Linear Programming Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(2), pages 235-244.
    2. Stephen J. Turnovsky, 1974. "Price Expectations and the Welfare Gains from Price Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(4), pages 706-716.
    3. Frederick V. Waugh, 1944. "Does the Consumer Benefit from Price Instability?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(4), pages 602-614.
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    Cited by:

    1. Gardner, Bruce & Chavas, Jean-Paul, 1979. "Market Equilibrium With Random Production," 1979 Annual Meeting, July 29-August 1, Pullman, Washington 278368, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Eidman, Vernon R., 1989. "Quantifying And Managing Risk In Agriculture," Staff Papers 13646, University of Minnesota, Department of Applied Economics.
    3. Anderson, Jock R. & Doran, Howard E., 1978. "Some Properties of Simple Functions of Random Variables," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 46(01), pages 1-11, April.
    4. Griffiths, William E. & Anderson, Jock R., 1978. "Specification Of Agricultural Supply Functions - Empirical Evidence On Wheat In Southern N.S.W," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 22(2-3), pages 1-14, August.
    5. Mahama, Ramatu, 1985. "A stochastic simulation of the impact of price insulation policies on world wheat market stability," ISU General Staff Papers 198501010800008868, Iowa State University, Department of Economics.
    6. Tabares Elizabeth & Ramón Rosales, 2005. "Políticas de control de oferta de coca: la zanahoria" y "el garrote""," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, May.
    7. Anderson, J.R., 1989. "Forecasting, uncertainty, and public project appraisal," Policy Research Working Paper Series 154, The World Bank.
    8. Fertő, Imre, 1995. "A mezőgazdasági árak stabilizálásának problémáiról [On the problems of stabilizing agricultural prices]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 256-269.
    9. Musser, Wesley N., 1994. "Progress In Risk Analysis In Regional Projects," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271553, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    10. Coleman, Jonathan R. & Jones, Chris, 1992. "Measuring welfare changes from commodity price stabilization in small open economies," Policy Research Working Paper Series 1021, The World Bank.
    11. Myers, Robert J. & Oehmke, James F., 1987. "Instability and Risk as Rationales for Government Intervention in Agriculture," Staff Paper Series 200938, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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