The distribution of welfare gains from price stabilization: An international perspective

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Abstract

A two-country model is used to analyze the welfare effects from stabilizing the price of an internationally traded commodity when the underlying demand and supply curves are nonlinear. Cases are found and conditions are stated under which the results are contrary to the ones under linearity. They show that, with a sufficient degree of nonlinearity and sufficiently large supply or demand, consumers in both countries gain from stabilization whereas producers lose. Also, importing countries are likely to gain more from stabilization than exporting countries. The results are thus important for the determination of who should contribute to the costs of operating an international buffer stock.

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