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Errors in the Numerical Assessment of the Benefits of Price Stabilization
L. Jay Helms
American Journal of Agricultural Economics
Vol. 67, No. 1 (Feb., 1985), pp. 93-100
Stable URL: http://www.jstor.org/stable/1240828
Page Count: 8
You can always find the topics here!Topics: Consumer prices, Price stabilization, Surplus, Risk aversion, Prices, Consumer surplus, Market prices, Utility rates, Economic uncertainty, Agricultural policy
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This paper presents a simple computational procedure for determining a consumer's willingness to pay to have a price stabilization policy implemented. Numerical simulations are then provided which demonstrate that the commonly used expected surplus measures (whether Hicksian or Marshallian) can in fact seriously misstate the true benefits of price stabilization. These simulations also illustrate the extent to which the results may be dependent upon the assumptions made--implicitly or explicitly--regarding the consumer's attitudes toward risk, thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost-benefit assessments with respect to these assumptions.
American Journal of Agricultural Economics © 1985 Agricultural & Applied Economics Association