A Risk Generated Non-Linear Cobweb
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With risk averse producers, the traditional cobweb model becomes non-linear. The currently
produced quantity is an homographic function of previous years' quantities. This may result in the market
generating chaotic price and quantity series, especially if demand is rigid. Hedging facilities are unable to
reduce the magnitude of fluctuations, which are socially detrimental, especially from the consumers' point
of view. This justifies public intervention in markets such as those for staple food commodities or health
care.