Author(s)

Andrew Schmitz, Claudine Chegini

Department of Food and Resource Economics, University of Florida, Gainesville, USA.

The theory of commodity storage and price stabilization has a long history. Schmitz & Chegini (2020) develop a price stabilization model under complete price certainty and conclude that storage, when carried out by producers, provides net societal benefits. Schmitz (2021) relaxes these assumptions, in a price risk model that distinguishes between producer ex ante decisions and ex post outcomes. Producers are assumed to make production decisions ex ante using a planning supply curve but ex post the outcome is different than that expected. In the price risk model, deviation from the planning supply curve is caused by supply shocks that are generated from production shocks, rather than from the shift in supply curves, as assumed in the price certainty models. The risk price model generates identical welfare results to the model developed under complete price certainty. With storage, society on net prefers price stability over instability.

Price Stability, Risk

Schmitz, A. and Chegini, C. (2023) Societal Gains from Price Stability: Does Risk Matter?. Theoretical Economics Letters, 13, 221-227. doi: 10.4236/tel.2023.132013.