Welfare implications of stabilizing consumption and production

Some economists are now urging the use of buffer stocks to help stabilize farm and food prices. Moreover, price stabilization has been shown to be socially beneficial from a theoretical point of view. Our purpose is to analyze the welfare implications of stabilized consumption and production and to compare them with the known implications of stabilized prices. It is shown that stabilized consumption is the least beneficial in its welfare implications. The relation between the gains from stabilization and the size of buffer stocks necessary to achieve stabilization also is analyzed. Finally, the presentation is extended to cover instability due to fluctuations in export demand.