Market interventions, international price stabilization, and welfare implications

The welfare effects of price stabilization are quantified under free trade and under distortionary policies when an exporting country protects domestic producers with price supports, an importing country pursues a price-fixing policy, and a second importing country follows a free trade policy. Results show that distortionary interventions cause greater world price variability. World gains from international price stabilization through a costless buffer stock scheme are higher under distortionary trade than under free trade.