Food Storage, Multiple Equilibria and Instability: Why Stable Markets May Become Unstable During Food Crises

J. Mackinnon

Working Papers Series from Centre for the Study of African Economies, University of Oxford

Abstract: A temporary-equilibrium model replicating institutional features of low-income agricultural economies is developed. In this model, food is held as an asset; because food production is relatively volatile, those with negative temporary income are net buyers of food. When food is the only asset, asset effects are likely to reduce the price-elasticity of the demand for food and can make it tatonnement-unstable, because the distributional effects of food price rises increase savings. When money is introduced, instability remains possible because a permanent rise in the price level increases risk, inducing substitution from money into food stocks.

Keywords: GENERAL EQUILIBRIUM; AGRICULTURE; FOOD; PRICES (search for similar items in EconPapers)
JEL-codes: D51 Q11 Q12 D52 (search for similar items in EconPapers)
Date: 1998

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