TITLE:
Producers’ Preference for Price Instability?
AUTHORS:
Andrew Schmitz
KEYWORDS:
Price Instability, Producer Preferences, Storage
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.10,
June
20,
2018
ABSTRACT: The debate over whether producers prefer price
instability to price stability continues, especially where policies are often
endorsed that aim at generating stability. Such policies include the holding of
agriculture commodity stocks by government to bring about price stability. But
why would producers support such a policy given that producers prefer price
instability, or do they? Oi argues that producers prefer price instability,
which is opposite to the conclusion reached by Massell. In this paper, we take
up the issue as to producers’ preference for price instability using the
classic welfare economic framework used by Massell and Just et al. We develop a producer price
expectation model that brings about price stability, which is possible without
storage. We use this as the basis upon which to compare price stability to
price instability. Our conclusion is that producers prefer price instability
regardless of whether it is due to demand or supply shocks.