Book contents
- Frontmatter
- Contents
- Preface
- Acknowledgments
- 1 Introduction
- Part I The basic model
- Part II Implications of storage for research on time series
- Part III Extensions of the model
- Part IV Public interventions
- 12 Welfare analysis of market stabilization
- 13 Floor-price schemes
- 14 Public storage under price bands and price pegs
- 15 Public policies to supplement private storage
- Part V Epilogue
- References
- Author index
- Subject index
12 - Welfare analysis of market stabilization
Published online by Cambridge University Press: 03 February 2010
- Frontmatter
- Contents
- Preface
- Acknowledgments
- 1 Introduction
- Part I The basic model
- Part II Implications of storage for research on time series
- Part III Extensions of the model
- Part IV Public interventions
- 12 Welfare analysis of market stabilization
- 13 Floor-price schemes
- 14 Public storage under price bands and price pegs
- 15 Public policies to supplement private storage
- Part V Epilogue
- References
- Author index
- Subject index
Summary
The existence of competitive storage stabilizes price, as was evident in the comparative-statics exercises of Chapter 4. Is this a desirable result? An affirmative answer may seem obvious, not just to “practical” men but to academics as well (e.g., Cochrane 1980). Indeed, many studies adopt price stability or income stability per se as the principal targets of policy (e.g., Arzac and Wilkinson 1979; Dixon and Chen 1982; Ghosh et al. 1987).
It seems that the main attraction of stability as a criterion is its simplicity; nevertheless, that simplicity is more apparent than real. Even those concerned solely with stability confront unavoidable trade-offs when the underlying source of disturbances, such as weather-related randomness in production, is not neutralized. As Josling (1977b) stresses, the underlying variability must express itself somewhere. In storage-induced stabilization, for example, more stable prices may mean less stable production or less stable net revenue, as noted in Chapter 4. In making these trade-offs involving stability, some other standard must be invoked. For economists in the neoclassical tradition, the natural choice of policy objective is some function of the welfare of individuals. Here we concentrate on the effects of stabilization on individual welfare, using where necessary the simplest possible method of aggregation: assuming equal weight for each individual's monetary measures of gains and losses.
This chapter offers a primer on welfare analysis of policies affecting market stability, such as a public buffer-stock scheme or public R&D that increases production stability or lowers storage costs.
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- Storage and Commodity Markets , pp. 335 - 357Publisher: Cambridge University PressPrint publication year: 1991