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SOME VARIANCE EFFECTS OF A FLOOR PRICE SCHEME FOR WOOL: A TWO‐PERIOD ANALYSIS*

SOME VARIANCE EFFECTS OF A FLOOR PRICE SCHEME FOR WOOL: A TWO‐PERIOD ANALYSIS* SOME VARIANCE EFFECTS OF A FLOOR PRICE SCHEME FOR WOOL : A TWO-PERIOD ANALYSIS* J. H. DULOY University oj New England During recent years, and especially since the Australian Wool Board recommended a floor price for wool, there has been considerable interest in the effects upon commodity prices and revenues of a system of buffer st0cks.I Powell and Campbell’s analysis of so-called “hidden losses” and “hidden gains” has indicated that a scheme such as that proposed for wool can be expected to lead to large revenue effects.2 However, there seems no reason to believe that the net effects upon growers’ revenues will be either positive or negative. Indeed, most of the proponents of the scheme do not claim favourable revenue effects, averaged over a number of periods. The “re~pectable’~ arguments in favour of the scheme then depend upon its variance effects-the reduction of price variability through the buying-in of wool by an authority when prices are low and the subsequent re-selling of wool when prices are high. Such an argument has apparently been important in the decision to recommend a reserve price scheme for The Board’s recommendation was for a conservative floor price, to be financed to the extent http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Australian Journal of Agricultural Resource Economics Wiley

SOME VARIANCE EFFECTS OF A FLOOR PRICE SCHEME FOR WOOL: A TWO‐PERIOD ANALYSIS*

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Publisher
Wiley
Copyright
Copyright © 1964 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1364-985X
eISSN
1467-8489
DOI
10.1111/j.1467-8489.1964.tb00353.x
Publisher site
See Article on Publisher Site

Abstract

SOME VARIANCE EFFECTS OF A FLOOR PRICE SCHEME FOR WOOL : A TWO-PERIOD ANALYSIS* J. H. DULOY University oj New England During recent years, and especially since the Australian Wool Board recommended a floor price for wool, there has been considerable interest in the effects upon commodity prices and revenues of a system of buffer st0cks.I Powell and Campbell’s analysis of so-called “hidden losses” and “hidden gains” has indicated that a scheme such as that proposed for wool can be expected to lead to large revenue effects.2 However, there seems no reason to believe that the net effects upon growers’ revenues will be either positive or negative. Indeed, most of the proponents of the scheme do not claim favourable revenue effects, averaged over a number of periods. The “re~pectable’~ arguments in favour of the scheme then depend upon its variance effects-the reduction of price variability through the buying-in of wool by an authority when prices are low and the subsequent re-selling of wool when prices are high. Such an argument has apparently been important in the decision to recommend a reserve price scheme for The Board’s recommendation was for a conservative floor price, to be financed to the extent

Journal

The Australian Journal of Agricultural Resource Economics – Wiley

Published: Jun 1, 1964

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