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A Stochastic Model of Optimum Commodity Buffer Stocks


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  • Paul Hallwood

    (University of Connecticut)


It has been established that in the case of linear supply and demand curves that are subjected to parallel stochastic shifts that the joint welfare of trading partners measured as the sum of consumers' and producers' surpluses is increased by a reduction in price instability. This paper, the precursor to a Quarterly Journal of Economics piece seeks to combine this result with information on the costs of buffer stock schemes to establish the optimum degree of price stabilization. The maximization of the trading partners' joint expected net benefits yields an optimum intervention price range and financial investment in commodity buffer stocks that will vary with demand and supply elasticities, and other market conditions.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 1980-01.

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Length: 19 pages
Date of creation: 1980
Date of revision:
Handle: RePEc:uct:uconnp:1980-01

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