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This book shows how decisions made by individual farmers influence
the efficiency of agricultural markets. Unless farmers properly
take account of the correlation between prices and yields in
forming their price forecasts, competitive markets will often be
socially inefficient, leading to misallocation of resources. The
authors demonstrate that a simple and practical price forecasting
rule, based on expected per unit revenue, is generally adequate to
ensure efficient market behavior.Time-series data from various
countries are used to test the hypothesis that market supply is
influenced by the correlation of price and yield as well as by
lagged market prices . The importance of market inefficiencies in
risky situations is shown to, depend on the variability of yields,
the nature of farmers'price forecasting behavior, the degree of
private risk aversion,and the elasticity of demand. The authors
suggest and evaluate three basic policy approaches governments may
take when confronted with very inefficient markets--establishing
production quotas, improving market information services, and
implementing price stabilization schemes. They conclude by
discussing implications of the study for the specification of
agricultural supply models and for the economic appraisal of risky
investment projects.
This book shows how decisions made by individual farmers influence
the efficiency of agricultural markets. Unless farmers properly
take account of the correlation between prices and yields in
forming their price forecasts, competitive markets will often be
socially inefficient, leading to misallocation of resources. The
authors demonstrate that a simple and practical price forecasting
rule, based on expected per unit revenue, is generally adequate to
ensure efficient market behavior.Time-series data from various
countries are used to test the hypothesis that market supply is
influenced by the correlation of price and yield as well as by
lagged market prices . The importance of market inefficiencies in
risky situations is shown to, depend on the variability of yields,
the nature of farmers'price forecasting behavior, the degree of
private risk aversion,and the elasticity of demand. The authors
suggest and evaluate three basic policy approaches governments may
take when confronted with very inefficient markets--establishing
production quotas, improving market information services, and
implementing price stabilization schemes. They conclude by
discussing implications of the study for the specification of
agricultural supply models and for the economic appraisal of risky
investment projects.
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