Pork cycle
Encyclopedia
In economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, the term pork cycle, hog cycle, or cattle cycle describes the phenomenon of cyclical fluctuations of supply
Supply (economics)
In economics, supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell.In economics the...

 and prices in livestock
Livestock
Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...

 markets. It was first observed in pig
Pig
A pig is any of the animals in the genus Sus, within the Suidae family of even-toed ungulates. Pigs include the domestic pig, its ancestor the wild boar, and several other wild relatives...

 market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

s in the US by Mordecai Ezekiel
Mordecai Ezekiel
Mordecai Joseph Brill Ezekiel was an American agrarian economist who worked for the United States government and the United Nations for a number of years....

 and in Europe by the German scholar Arthur Hanau.

The cobweb model

Nicholas Kaldor
Nicholas Kaldor
Nicholas Kaldor, Baron Kaldor was one of the foremost Cambridge economists in the post-war period...

 proposed a model of fluctuations in agricultural markets called the cobweb model
Cobweb model
The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers' expectations...

, based on production lags and adaptive expectations
Adaptive expectations
In economics, adaptive expectations means that people form their expectations about what will happen in the future based on what has happened in the past...

. In his model, when prices are high more investments are made. Their effect, however, is delayed due to the breeding time. Then the market becomes saturated which leads to a decline in prices. As a result of this, production is reduced but the effects take a long time to be noticed but then lead to increased demand and again increased prices. This procedure repeats itself cyclically. The resulting supply-demand graph resembles a cobweb.

This type of model has also been applied in certain labour sectors: high salaries in a particular sector lead to an increased number of students studying the relevant subject. When all these students after several years start looking for a job at the same time their job prospects are much worse which then in turn deters students from studying this subject.

An alternative model

Kaldor's model involves an assumption that investors make systematic mistakes. In his model, investing (e.g., breeding cattle rather than slaughtering them) when prices are high causes future prices to fall, and foreseeing this would have yielded higher profits for the investors (e.g., they should have slaughtered more when prices were high). Sherwin Rosen
Sherwin Rosen
Sherwin Rosen was an American labor economist. He had ties with many American universities and academic institutions including the University of Chicago, the University of Rochester, Stanford University and its Hoover Institution. At the time of his death, Rosen was Edwin A. and Betty L...

, Kevin M. Murphy
Kevin M. Murphy
Kevin Miles Murphy is the George J. Stigler Distinguished Service Professor of Economics at the University of Chicago Booth School of Business and a Senior Fellow at the Hoover Institution....

, and José Scheinkman
José Scheinkman
José Alexandre Scheinkman is a Brazilian-American mathematical economist, currently the Theodore A Wells '29 Professor of Economics at Princeton University. He spent the bulk of his career at the University of Chicago, where he served as department chair immediately prior to his departure for...

 (1994) proposed an alternative model in which cattle ranchers have perfectly rational expectations
Rational expectations
Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in...

about future prices. They showed that even in this case, the three-year lifetime of beef cattle would cause rational ranchers to choose breeding versus slaughtering in a way that would make cattle populations fluctuate over time.
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