New BERG Working Paper No. 182 by Roberto Dieci, Sarah Mignot, Noemi Schmitt and Frank Westerhoff published
In the BERG Working Paper Series 182 Roberto Dieci, Sarah Mignot, Noemi Schmitt und Frank Westerhoff have published a new paper entitled "Production delays, supply distortions and endogenous price dynamics".
A complete overview of all BERG Working Papers published so far can be found here.
It takes time to produce commodities, and different production technologies may take different lengths of time. Suppose that firms may switch between different production technologies that take different lengths of time. A natural implication of such a scenario is that not all firms would then offer their commodities in every period, i.e. firms’ total supply schedule would become a time-varying quantity. Based on a behavioral cobweb framework, we analytically demonstrate that commodity markets become unstable when firms switch too rapidly between production technologies that take different lengths of time. In particular, we observe that supply distortions lead to endogenous commodity price dynamics due to a mismatch between supply and demand.