External benefits of buffer stocks

depression to the period of boom. The

Communication

volume jk is initially

stored rather than

disposed of, but the subsequent release of kl from

the buffer stock will mean

that the same volume

External benefits of buffer stocks

will

enter

than being collected stock In a recent agency

paper,

acting

this subject,

and Grace’

they consider

it had operated keeping

Turner

in the waste

with

in the

paper

a simulation

of a buffer

simulations

over the period

of primary

ask whether

with a buffer stock scheme

commodity

1961-1974,

schemes.’

there are any external

and credit the scheme

hence results in savings to the waste the question

of whether

benefits,

magnitude

buffer

and

implied

on

a finding

However, benefits

with savings

disposal

authority.

stock agencies

argues

that

benefits

if in

Turner

associated stream,

and

This paper examines

in previous studies.

because

of the lower

If the stabilisation of the market price additional

external

benefit is generated.

It is assumed that the non-buffer collecting

stock

agencies are risk averse. so

the reduction

in the variance

of

market price caused by the buffer stock agency

more

encourages into

industry.

but are not of the

rather

of waste paper has a ‘supply effect’ an

enter

will have any such associated

are positive,

agencies

stream

by the non-buffer

price @*< p2 ).

that

in that waste

paper bought by the buffer stock agency does not enter the waste

external

stock

in the UK. As with other writers

that a buffer stock agency would have lost money

UK market

and Grace legitimately

discuss

market

of waste paper

the disposal

the waste

resources

to

paper

collection

In most European

countries,

for example, this is the argument used to encourage local authorities

to enter the

market on a large scale. In Figure 2 the A waste paper buffer stock scheme will

absorbed

yield an external benefit if its operations

period of depressed demand) is equal to

cause

of

kl (the release of waste paper from the

Figure

waste paper disposal or move the costs

buffer stock in the subsequent period of

effect of the lower input cost of paper

a reduction

of disposal

in

further

the

volume

away

in time.

order to show the external simplified paper

way

it is assumed

industry’s

paper

demand

is a negative

price. indicating partial

In

benefit in a that the

for

linear

waste

function

of

that waste paper is a

substitute for wood pulp in the

production

of paper

and

board.

The

boom).

by

the buffer

price, an intervention

between

association

economic paper

and D2

Dt

positive

activity.

from

selling

activities

operating

so

is

cover

its

about

p* if a

of stocks is to be

I the quantity of recycled

geometrically

municipal

waste

costs

disposal.

of

interference

stream If

in the market,

waste paper will be p, depression

with

and

positive

there

is

no

the price of

in the period of

pz in the period of

stock’s

operations

represents

the reduction

industry’s

demand

stock

is established

the higher intervention

price (p* >

and bd represents for

waste

stock

in Figure

is

2 the

collection

is an &crease

of ae + bf. Hence the

the increase in the paper

due

to the

p,) caused by

paper

with

the

boom demand. waste

paper

As the net quantity

purchased

of

by the paper

industry is unchanged over a completed cycle, there is of course no change in the

financial

accumulation

of

burden, unsold

stocks is avoided

by setting a unique

intervention

at

RESOURCES

buffer

p, )

volume

where jk (the quantity

a

in the paper

avoid an unnecessary

price

not

because

the waste paper market and, in order to secular

or

the release of stocks in the period of waste

objective of imposing a fixed price upon

the

whether

is equal to oc + od in

I, which is also equal to oa + ob

during the period of depressed demand,

lower market price (p*<

buffer

Figure

for waste paper at

is recycled

cycle is equal to oa + ob. Now assume that a

is

ca = bd. The amount ca

demand

production

price

waste

boom. The quantity of waste paper that in a completed

paper recycling

of waste paper

buffer

the

the

stock

over a completed cycle is oe + of, which

is

enter

of

p* to p*. When there is no supply elt‘ect, the vo ‘Iume of waste

net volume

also assumed to be a linear function and otherwise

intervention

case as it does not add to the

substance of the argument. In Figure

does not

buffer

However,

of positive elasticity. Paper not collected to

The

The as in

that the

price

established.

However,

over a completed paper production cycle is unaffected by the

assumed

the

we do not analyse

this

agencies

as to

and

costs. If so. the intervention

prices must be symmetrical

1 in

The supply of waste

on its buying

same

manufacture

reduce

unique

in Figure

the collecting

and paper-board significantly

now reduced from

a profit

by the buffer

the

I on the assumption

agency’s

avoided.

in

are

stock agency, perhaps with the objective

itself

the cycle

curves

of making

to

with

demand

products.

secular accumulation

parallel

price

supply curve shifts from S, to S,.

finished

range could be adopted

assumed

shift

in the

Of course. instead of a unique

intervention

demand schedule for waste paper is also to

stock

p* in Figure

I

of waste paper

POLICY

June

1977

However, been

of

waste

an external

generated

in

paper

Quonttty

disposal.

benefit will have terms

of

present

values because of the postponement

of

the costs of disposal from the period of

Figure without

1.

Waste

paper

recycling

a ‘supply effect’.

149