Commodity Price Stabilization under Unattainable Stocks

Commodity price stabilization continues to be a subject of keen interest to policy makers. The general conclusion within the context of welfare economics is that price stabilization brought about through stockholding activities leads to a net welfare improvement to society even though there are gainers and losers from price stabilization policies. Under the standard price expectation formulation used, storage does not result in complete price stability, but in price fluctuations within a positive price band. However, it does generate price stability under an alternative price expectation framework. Under the standard price expectation formulation, the gains from stability are positive, but much less than under an alternative price expectation specification.