Do Ration Shop Systems Increase Welfare? Theory and an Application to India

Lucie Gadenne

No 269083, Economic Research Papers from University of Warwick - Department of Economics

Abstract: In many developing countries households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether these countries’ characteristics justify the use of such ration shop systems. I find an equity-efficiency trade-off: an efficiencymaximizing government will never use ration shops but a welfare-maximizing one might, to redistribute and provide insurance. Welfare gains from introducing ration shops are highest for necessity goods with high price risk. I calibrate the model for India and find that ration shops are indeed welfare-improving for three of the four goods sold through the system today.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 44
Date: 2018-01-01
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Related works:
Working Paper: Do Ration Shop Systems Increase Welfare? Theory and an Application to India (2018)
Working Paper: Do Ration Shop Systems Increase Welfare? Theory and an Application to India (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269083

DOI: 10.22004/ag.econ.269083

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