Center for Economic Research, Department of Economics, University of Minnesota
This paper examines the feasibility of price fixing and the welfare
implications of government buffer stock programs in a stochastic general
equilibrium framework. It is found that regardless of the price set by the
government and regardless of the initial level of buffer stocks, a price
fixing scheme will eventually fail with probability one. In a competitive
equilibrium with storage by individuals, prices will be random even if the
nature of the stochastic processes are known to everyone. In the absence
of contingent contracts such an equilibrium can be second best.
Townsend, R.M., (1974), "Price Fixing Schemes and Optimal Buffer Stock Policies", Discussion Paper No. 48, Center for Economic Research, Department of Economics, University of Minnesota.
Townsend, Robert M..
Price Fixing Schemes and Optimal Buffer Stock Policies.
Center for Economic Research, Department of Economics, University of Minnesota.
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