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Errors in the Numerical Assessment of the Benefits of Price Stabilization
Author(s) -
Helms L. Jay
Publication year - 1985
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1240828
Subject(s) - robustness (evolution) , economics , microeconomics , sensitivity (control systems) , simple (philosophy) , economic surplus , econometrics , computer science , market economy , biochemistry , chemistry , philosophy , epistemology , electronic engineering , welfare , engineering , gene
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.