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The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization

  • Bruce L. Gardner
  • Ramón López

Interest-rate subsidies have been used to stimulate commodity stockholding, with the intention of stabilizing prices. However, reductions in price variability can be achieved at less government cost using a direct storage subsidy, and it is possible that an interest-rate subsidy will increase price variability even though the interest subsidy increases mean stocks held. These results are demonstrated using a stochastic dynamic programming model of optimal private storage, with parameter values relevant to agricultural commodity markets, and with particular reference to the U.S. soybean market. Copyright 1996, Oxford University Press.

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File URL: http://hdl.handle.net/10.2307/1243269
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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 78 (1996)
Issue (Month): 3 ()
Pages: 508-516

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Handle: RePEc:oup:ajagec:v:78:y:1996:i:3:p:508-516
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  1. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, June.
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