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Distribution of Social Benefits with Optimal Control of U.S. Wheat Stocks

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  • Koo, Won W.
  • Burt, Oscar R.

Abstract

One of the most important objectives in a grain storage program is to achieve the price stabilization. Consequently, a fundamental question associated with a storage program is who benefits and who loses from the price stabilization. Many studies have been published to answer this question. Waugh (13) took his proposition in early 1940 that consumers are better, off from the price in stabilization than the prices stabilized at their mean if the source of price instability is stochastic fluctuations in supply. Some years later, Oi (11) demonstrated that producers facing random price due to stochastic shift in demand are worse off from having prices stabilized at their mean. These two studies considered the welfare of one group only and ignored effects of price stabilization on the other group. Massell (10) put consumers and producers together in a single framework under the assumption that demand and supply curves are linear with additive stochastic disturbances. According to his study, welfare gains to each group are indeterminate and depend upon the relative size of variances and the slope of the demand and supply curves. A limitation of this study is the assumption of linear, supply and demand curves with additive stochastic disturbances which are not always true in application.

Suggested Citation

  • Koo, Won W. & Burt, Oscar R., 1979. "Distribution of Social Benefits with Optimal Control of U.S. Wheat Stocks," 1979 Annual Meeting, July 29-August 1, Pullman, Washington 277825, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea79:277825
    DOI: 10.22004/ag.econ.277825
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    References listed on IDEAS

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    1. Panos A. Konandreas & Andrew Schmitz, 1978. "Welfare Implications of Grain Price Stabilization: Some Empirical Evidence for the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(1), pages 74-84.
    2. Benton F. Massell, 1969. "Price Stabilization and Welfare," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(2), pages 284-298.
    3. Frederick V. Waugh, 1944. "Does the Consumer Benefit from Price Instability?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(4), pages 602-614.
    4. Turnovsky, Stephen J, 1976. "The Distribution of Welfare Gains from Price Stabilization: The Case of Multiplicative Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 133-148, February.
    5. Malinvaud, E, 1969. "First Order Certainty Equivalence," Econometrica, Econometric Society, vol. 37(4), pages 706-718, October.
    6. Richard E. Just, 1977. "Theoretical and Empirical Possibilities for Determining the Distribution of Welfare Gains from Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(5), pages 912-917.
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