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

Lucie Gadenne

The Warwick Economics Research Paper Series (TWERPS) 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.

Date: 2018
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https://warwick.ac.uk/fac/soc/economics/research/w ... erp_1149_gadenne.pdf

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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:wrk:warwec:1149

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