TRADE LIBERALIZATION AND DOMESTIC PRICE INSTABILITY IN AN AGRICULTURAL COMMODITY MARKET

Price instability appears to be a feature of many agricultural markets. In turn, reduction of instability is a key motive for intervention in industrialized countries. Where trade instruments are used for this purpose, they can sever the link between domestic and international prices. The consequences of market insulation for price variability are examined. A simple partial equilibrium model is developed and its predictions are examined against the experience of liberalization in the British main-crop potato market.