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Optimal food price stabilisation policy

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  • Gouel, Christophe

Abstract

This paper proposes a framework for designing optimal food price stabilisation policies in a self-sufficient developing country. It uses a rational expectations storage model with risk-averse consumers and incomplete markets. Government stabilises food prices by carrying public stock and by applying a state-contingent subsidy/tax to production. The policy rules are designed to maximise intertemporal welfare. The optimal policy under commitment crowds out all private stockholding activity by removing the profit opportunity from speculation. The countercyclical subsidy/tax to production helps price stabilisation by subsidising production in periods of scarcity and by taxing it in periods of glut. It contributes little to welfare gains, most of which come from stabilisation achieved through public storage.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 57 (2013)
Issue (Month): C ()
Pages: 118-134

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Handle: RePEc:eee:eecrev:v:57:y:2013:i:c:p:118-134

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Food price stabilisation; Incomplete markets; Risk-aversion; Storage;

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Cited by:
  1. Christophe Gouel & Sébastien Jean, 2012. "Optimal Food Price Stabilization in a Small Open Developing Country," Working Papers 2012-01, CEPII research center.
  2. Ikram Jebabli & Mohamed Arouri & Frédéric Teulon, 2014. "On the effects of world stock market and oil price shocks on food prices: An empirical investigation based on TVPVAR models with stochastic volatility," Working Papers 2014-209, Department of Research, Ipag Business School.

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