The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Cobweb Theorem

  • B. Peter Pashigian
Reference work entry


The cobweb theorem purports to explain persistent fluctuations of prices in selected agricultural markets. It was first developed in the 1930s under static price expectations where the predicted price equalled actual price in the last period. Muth’s rational expectations hypothesis posited that forecast errors will not be serially correlated and the pattern of past forecast errors cannot be used to improve the accuracy of the forecasts. The fundamental question of whether observed price cycles are better explained by systematic errors in price forecasts or by the cumulative impact of unpredictable shocks has not as yet been definitively addressed.


Adaptive expectations Cobweb theorem Expectations Kaldor, N. Price cycles Price expectations Rational expectations 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Buchanan, N. 1939. A reconsideration of the cobweb theorem. Journal of Political Economy 47: 67–81.CrossRefGoogle Scholar
  2. Coase, R.H., and R.F. Fowler. 1935. Bacon production and the pig-cycle in Great Britain. Economica 2: 142–167.CrossRefGoogle Scholar
  3. Ezekiel, M. 1938. The cobweb theorem. Quarterly Journal of Economics 52: 225–280.CrossRefGoogle Scholar
  4. Freeman, R.H. 1971. The market for College-trained manpower. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  5. Hoffman, D.L., and P. Schmidt. 1981. Testing the restrictions implied by the rational expectations hypothesis. Journal of Econometrics 15: 265–287.CrossRefGoogle Scholar
  6. Kaldor, N. 1934. A classificatory note on the determinateness of equilibrium. Review of Economic Studies 1: 122–136.CrossRefGoogle Scholar
  7. Mills, E.S. 1961. The use of adaptive expectations in stability analysis: Comment. Quarterly Journal of Economics 75: 330–335.CrossRefGoogle Scholar
  8. Muth, J.F. 1961. Rational expectations and the theory of price movements. Econometrics 29: 315–335.CrossRefGoogle Scholar
  9. Nerlove, M. 1958. Adaptive expectations and cobweb phenomena. Quarterly Journal of Economics 72: 227–240.CrossRefGoogle Scholar
  10. Pashigian, B.P. 1970. Rational expectations and the cobweb theory. Journal of Political Economy 78: 338–352.CrossRefGoogle Scholar
  11. Slutzky, E.E. 1937. The summation of random causes as the source of cyclical processes. Econometrica 5: 105–146.CrossRefGoogle Scholar
  12. Waugh, F.V. 1964. Cobweb models. Journal of Farm Economics 46: 732–750.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • B. Peter Pashigian
    • 1
  1. 1.