ISHS Acta Horticulturae 55: IV Symposium on Horticultural Economics
MARKET INSTABILITY, STABILISATION, AND A NEW ZEALAND CASE STUDY IN GUARANTEED PRICING |
| Author: | A.N. Rae |
| Abstract:
Prices should serve as guideposts to growers in making resource allocation, decisions. This requires that markets are "price efficient" in that buying, selling and pricing operations which ensure that prices are responsive to consumer demands. If prices are to guide resources into their most efficient allocation among uses, how does market instability affect this role? First, price-efficiency is reduced because the trend in market prices tends to be obscured by fluctuations about the trend, with the result that the price mechanism might fail in its task of transmitting market messages to resource owners. Second, individual producers might attempt to overcome price instability through diversification, aimed at achieving a more stable income over time than a more specialized programme would realize. Diversification can be carried too far, however, and a cost, equal to the foregone benefits of specialization, would be incurred. Third, it can be argued that instability poses an economic problem due to welfare effects. These include problems of capital rationing and distorted investment, meeting regular debt-repayment obligations and the planning of family expenditures. | |
Download Adobe Acrobat Reader (free software to read PDF files) | |
