For a large initial supply, the government price support program reduces price instability but increases shortrun revenue instability. Moreover, price supports will typically increase producer welfare in the shortrun, but not necessarily in the longrun. Previous studies employing the rational expectations hypothesis in U.S. field crops have failed to consider acreage in their empirical analysis. This failure ignores important decisions producers face earlier in the production process. This study attempts to fill this void and explores the plausibility of alternative expectational specifications in U.S. soybean market.
Empirical results confirm the existence of both rational and naive expectations in the market.
Naive expectations are not rational in that they are biased predictors of actual values. The retailer's inventory investment decision is made under uncertainty of expected sales. Therefore, to minimize these potential costs the retailer may choose either to reduce or to pad inventory investment, a priori, with the choice dependent upon the relative potential costs of too little or too much inventory. In the context of a stock-adjustment model of inventory investment, is reported that as their uncertainty surrounding expected sales increases, retailers choose to pad inventories, ex ante. This essay describes an alternative methodological approach to isolating the functional character of a chaotic attractor from an empirical sample through an inductive, statistical process.