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The Value of Weather Information in Market Equilibrium
Bruce A. Babcock
American Journal of Agricultural Economics
Vol. 72, No. 1 (Feb., 1990), pp. 63-72
Stable URL: http://www.jstor.org/stable/1243145
Page Count: 10
You can always find the topics here!Topics: Weather, Analytical forecasting, Elasticity of demand, Supply, Meteorological data, Prices, Farmers, Information economics, Market prices, Inelasticity of demand
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Increased accuracy of weather forecasts does not necessarily increase commodity supply or farmer welfare. This study presents a stylized model of competitive production with rational expectations and demonstrates that improved weather information harms farmers facing an inelastic demand. Contrary to the conclusions of previous studies, the decline in farmer welfare does not require an expansion in expected supply. Better weather information may signal farmers to produce less on average under an inelastic demand. A supply decrease occurs when increases in the physical productivity of applied inputs are dominated by adverse price consequences.
American Journal of Agricultural Economics © 1990 Agricultural & Applied Economics Association