Expectations, supply response, and marketing boards: An example from Kenya

Whether farmers form price expectations adaptively or in a forward-looking manner has implications for supply response analysis and for the implementation of agricultural policy reform. This paper examines the formation of price expectations by Kenyan export-crop farmers who market their produce through a monopsonistic parastatal. The analysis allows for relaxation of the small-country assumption within a rational expectations framework. Production behavior is consistent with expectations of future prices based on indicators of aggregate supply and of the marketing board's purchasing capacity. The finding that price forecasts may be formed using information other than previous price levels implies that marketing reforms that raise prices may not raise the relevant price expectations. To elicit a positive supply response, market reforms should be sensitive to farmers' interpretation of institutional signals as well as previous prices.


Issue Date:
1996-04
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/173882
Published in:
Agricultural Economics: The Journal of the International Association of Agricultural Economists, Volume 14, Issue 1
Page range:
21-31
Total Pages:
12




 Record created 2017-04-01, last modified 2017-08-27

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