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Abstract

With risk averse producers, the traditional cobweb model becomes non-linear. The currently produced quantity is an homographic function of previous years' quantities. This may result in the market generating chaotic price and quantity series, especially if demand is rigid. Hedging facilities are unable to reduce the magnitude of fluctuations, which are socially detrimental, especially from the consumers' point of view. This justifies public intervention in markets such as those for staple food commodities or health care.

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