Simple Theoretical Analysis of International Commodity Agreements

Abstract

This chapter presents a simple theoretical analysis of the international commodity agreements. Advocates of international commodity agreements recognize that stabilization of export revenues probably is of much more interest to the developing countries than is stabilization of prices. In principle, a buffer stock authority might buy and sell with the intent of stabilizing revenues. Such an operation would be much more difficult than price stabilization, however, for several reasons. The theoretical considerations presented in the chapter give important insights into the arguments for and against international commodity agreements. They suggest that the developing country producers of the 10 UNCTAD core commodities may be advocating such agreements because the chances of success of producers' cartels for these commodities are not high. They also indicate that normative arguments against international commodity agreements on the grounds of efficiency or social welfare maximization are not well based. Moreover, they imply that whether producers or consumers gain from the international commodity agreements and whether or not there is a tradeoff between the level and instability of producers' revenues cannot be established on the basis of economic theory.