Journal of Intcrnatiowl Economics 8 t 197X) 551 563. 0 Nxth-Holland PublislGng Company THE DISTRIBUTIO~N OF WELFARE GAINS FROM . PRICE STABILIZATION An international perspective Richard JUST* zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPON University of Cal’ifornia, Berkeley, CA 94720, U.S.A. Ernst LUTZ University of Calijomia, Berkeiey, CA 94720, U.S.A. Andrew SCHMZ’TZ University of California, Berkeley, CA 94720, U.S.A. Stephen TURNOVSKY Australinn National University, Canberra, A.C.T 2600, Australia Received July 1976, revised version received August 1977 A two-cc,untry model is used to analyze the welfare effects from stabilizing tlte price of an internationally traded commodity when the underlying demand and supply curves are nonlinear. Cases are found and conditions are stated under which the results are contrary to the ones under linearity. They show that, with a sufficient degree of nonlinearity and sufficiently large supply or demand, consumers in both countries gain from stabilization whe:eas producers Icse. Also, importing countries are likely to gain more from stabilization than exporting countrres. The resutts are thus important for the determination of who should contribute to the costs of operz.ting an international buffer stock. 1. Introduction With the variability of prices associated with the current worldwide inflationary situation, ti*;x desirability of stabilizing the prices of inter- nationally tnaded k;oods is becoming a problem of some importance. It is particularly significal;t in relation to basic food grains, e.g. wheat and rice, the price of which has both increased and become more variable during recent years. Also, the phenomenal growth in demand from abroad for North Amer:(cd’s basic food gn.ns has resulted in depletion of the large grain stocks held &lring the 1950s an4 1960s. In view of t.hes,e developments and the fact that in any given year at least *Giannini Foundation Paper No. 167. We would like to thank the U.S. Department of Agriculture for financial support under contract 12-17-05-8.-1328--X.