The Collapse of the Australian Wool Reserve Price Scheme.

This paper examines the background to the collapse of price stabilization under the Australian Wool Reserve Price Scheme in 1991-92 and draws out implications for the feasibility of goverment backed price stabilization schemes. Optimal control techniques are applied to the problem of valuing stabilization stockpiles. Option pricing techniques are used to elucidate the incentives facing the industry and to explain why the industry adopted policies that drove the scheme to its collapse. Copyright 1994 by Royal Economic Society.