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

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.

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 Record created 2018-10-08, last modified 2020-10-28

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