The Distribution of Welfare Gains from International Price Stabilization under Distortions

In a two‐country model with distortions and general demand and supply functions, the welfare implications of international price stabilization are analyzed. The degree of nonlinearity of the excess demand function in the free trade exporting country as well as the distortions are found to be of crucial importance in determining who gains from stabilization. With a high degree of nonlinearity, producers in both countries as well as the exporting country as a whole lose from stabilization, whereas consumers in both countries and the importing country gain. This is contrary to previous results with linearity.