A Note On Losses From Price Stabilization

In a recent article in this journal, Tisdell (1) has taken up the question of price stabilisation as it affects both the growers and users of a raw material, in this case wool. He has constructed a model which purports to show conditions under which a reduction in the variability of wool prices by the operation of a self balancing buffer stock scheme will reduce (a) the producer surplus of growers and (b) the average (or expected) profits of processors.1 While applauding this integrated approach to the problem of commodity price stabilisation, we hold serious reservations about the relevance of Tisdell's conclusions. These suffer from a mistaken inference drawn by Tisdell concerning the effects of a stable versus unstable price regime on the expected total costs of wool users.