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Abstract
Standard deterministic analysis of agricultural and biofuel policies can yield incomplete or misleading
results. Stochastic analysis is especially important when policies have asymmetric effects and when there
is intrinsic interest in uncommon events or the distribution of possible outcomes.
The paper examines four recent cases where a stochastic approach was critical to a complete and
balanced examination of important US policy issues. In each case, a stochastic model of the US
agricultural and biofuel sectors was used to estimate 500 sets of possible market outcomes for the 2007-
2016 period.
Changes in support levels, a proposed revenue-based program, possible World Trade Organization limits
on internal support measures, and biofuel use mandates are all found to have potential impacts that could
have been missed by traditional deterministic analysis. A stochastic approach could also be valuable in
looking at EU policy questions such as possible reductions in intervention prices and export subsidies.