On the Desirability of Price Stabilization

Abstract

The introductory chapter has shown that price stabilization is often discussed with reference to primary commodity markets, i. e. to the markets of foods and minerals. It is commonplace in the literature to analyze both groups of primary commodities within one model. However, this represents an — in my eyes — unjustifiably high degree of aggregation. For note first that protected domestic markets do mainly prevail in the range of foodstuffs (and not so much among minerals). Further, agricultural production is typically subject to strong stochastic influences such as wheather conditions and pests, whereas this is not the case in, say, the mining of metals. On the other hand, demand for minerals is probably considerably more sensitive to macroeconomic shocks than is the demand for basic foodstuffs¹¹. I will therefore deviate from the tradition of covering both types of primary commodities by one model and henceforth confine my attention solely to agricultural products¹².