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© 1988 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

World price uncertainty and agricultural policy formulation under rational expectations

JEAN-MARIE CHAUVEAU and KATHRYN M. GORDON

Groupe E.S.C.P. 79, Av. de la Républiqe 75011 Paris, France

Summary

This paper presents a model of how different farm support mechanisms affect world price uncertainty. This issue is addressed within the framework of a rational expectations trade model for a storable commodity market. Here, absorption of physical production shocks and that of exogenous variable (mainly macroeconomic) shocks are tracked separately and are found to be quite different. This model leads to the conclusion that the alleged variance-reducing impact of the free trade regime, while plausible, is a special case of a more general model in which the impact is ambiguous.


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