The Journal of Fisheries Business Administration (수산경영론집)

The Korean Society of Fisheries Business Administration (한국수산경영학회)
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A Dynamic Price Formation System and Its Welfare Analysis in Quantity Space: An Application to Korean Fish Markets

  • Received : 2010.08.12
  • Accepted : 2010.09.27
  • Published : 2010.09.30
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Abstract

As policy makers are often concerned about dynamic effects of demand behavior and its welfare analysis by quantity changes, the paper shows how dynamic price formation systems can be built up to analyze the effect of policy options to the markets dynamically. The paper develops dynamic model of price formation for fish from the intertemporal optimization of the consumer choice problem. While the resulting model has a similar form of the error correction types of dynamic price formation system, it provides the rational demand behavior contrary to the myopic behavior of error correction demand models. The paper also develops appropriate tools of dynamic welfare analysis in quantity space using only short-run demand estimates both theoretically and empirically as a first attempt in the literature of price formation and fisheries. The empirical results of Korean fish markets show that the dynamic model and the welfare measures are reasonably plausible. The methodology and theory of this research can be applied and extended to the commodity aggregation, dynamic demand estimation, and dynamic welfare effects of regulation in the similar framework. Thus, it is hoped that this will enhance its applications to the demand-side economics.

Keywords

Acknowledgement

Supported by : Catholic University of Daegu

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