ABSTRACT
This chapter provides a survey of how economists have looked at the problem of instability. The microeconomic literature is discussed in the third section, where we start with the Waugh-Oi-Massell framework and then discuss nine reasons why this framework is too simple. Initially the microeconomics literature measured benefits from stabilization as Marshallian surpluses, and later used a more sophisticated expected-utility framework. The effects would be ‘supennultiplied’ by induced investments in the primary producing sector during those years. Although this idea came up from time to time in later years, it has never gained substantial political support from the developed countries. In a survey of responses to positive trade shocks in the second half of the 1970s, J.M. Davis summarizes: ‘the increase in producer prices was restricted, allowing substantial sums to accrue to the central government and commodity organizations. The pure microeconomics of stabilization has developed substantially since the first exercises along the Unes of Marshallian surplus.
