A Critical Survey of the Literature

TLDR: The authors discusses the ex-ante trading decisions and ex-post commodity trading decisions in the presence of three types of uncertainty: uncertainty in prices, in technology, and in preferences, and concludes that the first best policy consists of no government intervention.

Abstract: This chapter discusses the ex-ante trading decisions and ex-post commodity trading decisions. Three types of uncertainty considered include uncertainty in prices, in technology, and in preferences. In the ex-ante trading models, trading decisions are made before the resolution of uncertainty. In particular, these models assume price uncertainty and when an export or import commitment is made, the price that will be paid or received is unknown. In the ex-post trading models, trading decisions are made after uncertainty resolves. In both types of models, input decisions are made before the resolution of uncertainty. This means that in the presence of technological uncertainty, inputs do not determine a certain output level but rather the distribution of output. It is observed that in the case in which production decisions are consistent with consumption preferences, the first-best policy consists of no government intervention.