PRICE-BAND STABILIZATION PROGRAMS AND RISK - AN APPLICATION TO THE UNITED-STATES CORN MARKET

The impacts of introducing a partial price stabilization scheme in the U.S. corn market are investigated by using a modified version of the bounded price variation model. Specifically, a model is developed and estimated that includes rational expectations of the first three centr al moments of the (truncated) equilibrium price distribution. The esti mated model is used to simulate market equilibrium effects of introduc ing upper and lower price limits through a tax-subsidy scheme. The res ults show that corn producers are downside risk averse, and that marke t feedback effects of price stabilization can, at times, be more impor tant than direct effects.