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Abstract

This paper presents a method for evaluating the supply response of individual producers to a price underwriting scheme. The method includes precise formulae to take account of the impact of price underwriting on the producer's uncertain conditions. The Australian Wheat Board's Guaranteed Minimum Price Scheme is taken as a specific example of price underwriting in practice. Results show the scheme to lead to only relatively small supply responses. The paper also demonstrates the impact on producer behaviour of an increase in price uncertainty in the presence of an underwriting scheme.

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