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Optimal food price stabilisation policy

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  • Christophe Gouel

    (ECO-PUB - Economie Publique - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

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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  • Christophe Gouel, 2013. "Optimal food price stabilisation policy," Post-Print hal-01019459, HAL.
  • Handle: RePEc:hal:journl:hal-01019459
    DOI: 10.1016/j.euroecorev.2012.10.003
    Note: View the original document on HAL open archive server: https://hal.science/hal-01019459
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    Keywords

    Storage; Risk-aversion; Food price stabilisation; Incomplete markets;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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