TY - JOUR
T1 - Setting price controls while facing variable or uncertain market conditions
AU - Chen, Paul
PY - 1999/8
Y1 - 1999/8
N2 - Price controls under variable or uncertain market conditions do not lead to market equilibrium. Under different assumptions for the rationing mechanism during shortages and surpluses, I find, assuming small market shocks, that the optimal regulated price can be related in a simple way to the relative slopes of the marginal benefit and marginal cost functions. In addition, if the consumption price may differ from the production price, then consumers should pay less than or equal to what producers receive, implying possibly a unit subsidy to market transactions.
AB - Price controls under variable or uncertain market conditions do not lead to market equilibrium. Under different assumptions for the rationing mechanism during shortages and surpluses, I find, assuming small market shocks, that the optimal regulated price can be related in a simple way to the relative slopes of the marginal benefit and marginal cost functions. In addition, if the consumption price may differ from the production price, then consumers should pay less than or equal to what producers receive, implying possibly a unit subsidy to market transactions.
UR - http://www.scopus.com/inward/record.url?scp=0040627864&partnerID=8YFLogxK
U2 - 10.1111/1468-2354.00031
DO - 10.1111/1468-2354.00031
M3 - Article
SN - 0020-6598
VL - 40
SP - 617
EP - 634
JO - International Economic Review
JF - International Economic Review
IS - 3
ER -