Optimal food price stabilization in a small open developing country

Christophe Gouel and Sebastien Jean

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Abstract: This paper analyzes the use of storage and trade policies to achieve food price stabilization in a small open developing country. Optimal stabilization policies are identified using a rational expectations storage model with risk-averse consumers and incomplete markets. Without public intervention, price dynamics are driven by domestic productive shocks and international prices. On its own, an optimal storage policy is found to be detrimental to consumers because its stabilizing benefits leak to the world market. In contrast, an optimal combination of storage and trade policies results in a powerful stabilization of domestic food prices. However, such an optimal combination is shown to entail two serious drawbacks: its distributive impacts are large compared to its efficiency benefits, and by distorting excess supply curves, it may aggravate high world price episodes.

Keywords: Food price stabilisation; Incomplete markets; Risk-aversion; Storage (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-01173054v1
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Citations: View citations in EconPapers (21)

Published in World Bank Economic Review, 2015, 29 (1), pp.72-101. ⟨10.1093/wber/lht018⟩

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Related works:
Journal Article: Optimal Food Price Stabilization in a Small Open Developing Country (2015)
Working Paper: Optimal Food Price Stabilization in a Small Open Developing Country (2012)
Working Paper: Optimal food price stabilization in a small open developing country (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01173054

DOI: 10.1093/wber/lht018

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