Considerations in Designing Stabilization Schemes

Abstract

Stabilization schemes have, in the current more fundamental sources of uncertainty, national and international debates, come to such as production risks, price stabilization is mean almost exclusively price stabilization unlikely to be a first-best policy, schemes. Economic theory, while somewhat ambiguous on the topic, is far from supportive of the need for price stabilization schemes. A key feature of these analyses is to define commodities by possible states of nature as well as by their physical characteristics, so that Pareto-optimal equilibria are defined for the economy for each state of nature. The conclusion in this case is that stabilization must always be desirable and that the first-best policy is to remove the source of uncertainty. The authors shall largely share this preoccupation in this paper, but it is worth considering briefly the rationale of this focus.