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Abstract
While measuring the benefits from liberalisation is obviously important, from a theoretical as
well as from a political point of view, one may question the validity of the presently widespread
Walrassian approach. The latter does not take account of the fact that supply is just as must
(and perhaps more) risk as (average) price responsive. Now, it turns out that if (contrary to the
strong versions of the “rational expectation hypothesis”), producers do not take their decisions
on the basis of equilibrium prices only, then the market, instead of equilibrium, can generate
very harmful seemingly random fluctuations. These considerations are incorporated into a partial
equilibrium model of the world sugar industry, and a GTAP style general equilibrium
model of the world economy. In both cases, liberalisation, preventing price stabilisation policies,
results in more instability, and a decrease in welfare. Such an outcome is specific of agriculture
and other low price elasticity commodities.