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Optimal Food Price Stabilization in a Small Open Developing Country

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  • Christophe Gouel
  • Sébastien Jean

Abstract

This paper analyzes food price stabilization policies in a small, open, developing country. Without public intervention, price dynamics are driven by domestic productive shocks and international prices. Trade and/or storage policies are optimally designed to increase welfare, in a context where consumers are risk-averse and markets are incomplete. An optimal storage policy on its own is detrimental to consumers, since its stabilizing benefits leak into the world market. In contrast, optimal combination of storage and trade policies results in a powerful stabilization of domestic food prices. Such a policy mix includes export restrictions, which are harmful to export partners, but to refrain from using them is costly and entails substantial transfers from consumers to producers.

Suggested Citation

  • Christophe Gouel & Sébastien Jean, 2012. "Optimal Food Price Stabilization in a Small Open Developing Country," Working Papers 2012-01, CEPII research center.
  • Handle: RePEc:cii:cepidt:2012-01
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    More about this item

    Keywords

    Food security; incomplete markets; storage; trade policy; export restrictions;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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