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.     

Relative price variability,inflation and the allocative efficiency of the price system

This paper develops a theory of the relationship between aggregate and relative price variability based on the inability of people, even in a rational world, to identify permanent changes in relative demands (whether caused by real or by monetary variability) and relative productivities as soon as they occur. The theory implies that the variance of the rate of inflation and the variance of relative price change are positively related. Although expectations are rational and markets always clear, production decisions respond sluggishly to changes in relative prices. Temporary shocks to relative demands cause prolonged changes in the structure of production. Available information is used so as to maximize the efficiency of the price system. However, this efficiency decreases when any of the underlying variances increases. This decrease is more pronounced when the production lag is longer.     

A Closer Look at Serial Growth Rate Correlation

Serial correlation in annual growth rates carries a lot of information on growth processes – it allows us directly to observe firm performance as well as to test theories. Using a seven-year balanced panel of 10,000 French manufacturing firms, we observe that small firms typically are subject to negative correlation of annual growth rates, whereas larger firms display positive correlation. Furthermore, we find that those small firms that experience extreme positive or negative growth in any one year are unlikely to repeat this performance in the following year. Thanks go to Carlo Bianchi, Giulio Bottazzi, Domenico Delli Gatti, Giovanni Dosi, Bernard Paulré, Rekha Rao and participants at the LEM conference on ‘Reappraising Economics as an Empirically Disciplined Science’ in Volterra in September 2006 for helpful comments. I am also indebted to Larry White (the editor) and two anonymous referees for many insightful remarks and suggestions. The usual disclaimer applies.     

Modeling to Relate Variables in the Context of Franchises in Brazil

The central objective of the research is to propose a model for the comparative study of the degree of relationship between the variables considered as most relevant in the context of franchises in Brazil. In terms of methodology, the research undertook a qualitative survey of the variables, which in a second phase provided a quantitative framework in order to fulfill the proposed objective, through concepts based on multicriteria methods, performance measurement systems, and linear correlation. Resulting from the practical implementation proposed for the General Food category, it was found that only two constants, denoted “Average Initial Investment” and “Financial Obligations,” are directly related to the base variable defined by “Gross Revenues.”