Improving the Environment for a Greener Future
New Horizons in Environmental Economics series
Chapter 15: Intervention of Economic Policy and its Nonlinear Effects in Japan
INTRODUCTION Behavior of commodity price is important to understand because of its implications to the economy. In the case of the environment and resources, the effects of carbon dioxide, petroleum, and renewables have been an obstacle to the analysis in many cases of traditional methodological techniques. This chapter looks at one commodity in agriculture, as one example, to show how our methodology can be utilized in pricing analysis. Nonlinear dynamics and deterministic chaos have many applications in economics. One focus of the chaos studies in economics is on the structural changes in economic systems. Small shifts of policy may result in structural changes and thus it is very difficult for the government to keep the system at equilibrium when the system is at a critical state (Zhang, 1990).1 In welfare economics, in general, it is argued that government intervention brings inefficient outcomes and generates a loss in social welfare. This is because perfectly competitive markets can lead to the Pareto-optimal allocation of resources. However, under the existence of market failure such as instability of agricultural markets, government involvement might be justified to fix the market failure (Schultz, 1945; Cochrane, 1958; Gardner, 1987). Recently, nonlinear dynamics and deterministic chaos have been intensively studied and are found to have great potential in various fields (Goodwin, 1990; Pesaran and Potter, 1993; Rosser, 1999; Majumdar et al., 2000; Chatrath et al., 2002). For decades, nonlinear time-series analysis techniques have been cultivated, based on the development of these techniques (Thompson and Stewart 1986; Moon,...
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