Institute for Development Studies, University of Nairobi

The present paper tries to show the limitations of the traditional approach to evaluating commodity stabilization schemes. It is asserted that no definite answer can be given concerning the global welfare aspects of such schemes. The emphasis of the study, therefore, lies on the clarification of the effects of international stabilization schemes on exporting and importing nations. Starting with rather general assumptions about demand and supply curves, we determine the effects of international stabilization schemes on the revenue (expenditure) overtime and on the fluctuation of revenue (expenditure) of individual countries. However, without knowing the parameters of the domestic supply and demand curves and of the world market supply and demand curves, no definite conclusions can be drawn. This, clearly, contradicts some recent findings in the literature which were derived from very special assumptions and resulted in definitive statements. This study is not intended to provide a conclusive answer as to whether to establish international stabilization schemes or not. To answer this question, more information is required about a number of factors such as the probability, direction and magnitude of fluctuations in supply at the national and the international level, the total cost of the stabilization scheme and the contribution required of an individual country, and, above all, the feasibility of finding the trend equilibrium quantity of a commodity which ought to be stabilized.