A Simulation Analysis of Vegetable Price Stabilization Policies With Special Reference to the “Contract-System of Vegetable Production” in Kobe City

Abstract

　The intention of this paper is to present an econometrically proven direction for improving of vegetable price stabilization policies in the municipality of Kobe. For this purpose, the “contract-system of vegetable production” in Kobe is taken as an example and, the mechanism and economic effects of this system are analyzed, through econometrical methods.

　Firstly, the final bid price and the compensation for low prices involved in this system are described in terms of economic model. Secondly, model of purchased quantity and wholesale price is developed, assuming that the daily fluctuations of purchased quantity and wholesale price of the vegetables are stochastic variables when this system is not working.

　Various simulations are made by manipulating guaranteed standard prices, minimum standard prices, maximum wholesale prices, and rate of compensation.

　The following conclusions are derived: 1) the variation indices of daily selling priced tend to be larger since the daily marketing of vegetables cannot be carried out as planned, 2) the final bid price and compensation for low prices can, in some occasions, simultaneously occur, 3) according to the relation between the rate of compensation and the rate of market commission, excessive compensation for low prices can be made, and 4) the fluctuations in market prices can be mitigated by the system of bidding.