Asymmetry and Robustness in Stabilisation Policy for Imperfect Commodity Markets

  • Jati K. Sengupta
Part of the Advanced Studies in Theoretical and Applied Econometrics book series (ASTA, volume 13)

Abstract

Recent theoretical discussions of commodity stabilisation policy through buffer fund and/or international commodity agreements have stressed three new aspects of the policy problem which are of great importance for the less developed countries (LDCs) and the North—South trade. The first aspect refers to the role of dominant producers in imperfect or cartelised markets, which may be significantly different from the competitive frameworks. Thus Newbery (1984) has developed the hypothesis that if demand is linear, then dominant producers find it optimal to undertake significantly more storage than is competitively justified and this storage policy increases price stability in proportion to the market share of the dominant producers. The second aspect deals with the risk sensitivity of buffer stock intervention rules and the extent to which conventional decision rules could be improved so as to protect the producers of primary commodities in LDCs against the uncertainty of future export earnings. Several features of this problem have been analysed by Brown (1975), Goreux (1978), Nguyen (1980) and Hughes Hallett (1986). The contributions by Nguyen (1980) and Hughes Hallett (1986) specifically introduce the need for minimising the variance of export earnings as a goal to be pursued by the buffer fund authority and in the framework of linear quadratic Gaussian (LQG) model of optimal control this introduces robustness into a buffer stock policy. This has been stressed by Whittle (1981) as a risk sensitive generalisation of the traditional LQG optimal control rule.

Keywords

Price Stabilisation Commodity Market Stabilisation Policy Dominant Producer Export Earning 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Kluwer Academic Publishers 1988

Authors and Affiliations

  • Jati K. Sengupta
    • 1
  1. 1.University of CaliforniaSanta BarbaraUSA

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