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Managing food price volatility in a large open country: the case of wheat in India

Listed author(s):
  • Christophe Gouel
  • Madhur Gautam
  • Will J. Martin

India has pursued an active food security policy for many years by using a combination of trade policy interventions, public distribution of food staples, and assistance to farmers through minimum support prices defended by public stocks. This approach has been quite successful in stabilizing staple food prices, but comes at a high cost, and with potential risks of unmanageable stock accumulation. Based on a rational expectations storage model representing the Indian wheat market and its relation to the rest of the world, we analyse the cost and welfare implications of this policy, and unpack the contribution of its various elements. To analyse alternative policies, we assume that social welfare includes an objective of price stabilization and assess optimal policies corresponding to this objective. We consider fully optimal policies under commitment as well as optimal simple rules, and show that adopting simple rules can achieve most of the gains from fully optimal policies.

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File URL: http://hdl.handle.net/10.1093/oep/gpv089
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 68 (2016)
Issue (Month): 3 ()
Pages: 811-835

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Handle: RePEc:oup:oxecpp:v:68:y:2016:i:3:p:811-835.
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  1. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
  2. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
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