Can Rationing Increase Welfare? Theory and an Application to India's Ration Shop System

Lucie Gadenne

American Economic Journal: Economic Policy, 2020, vol. 12, issue 4, 144-77

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

JEL-codes: D12 H23 H25 O12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Can Rationing Increase Welfare? Theory and An Application to India's Ration Shop System (2018)
Working Paper: Can rationing increase welfare? Theory and an application to India's ration shop system (2018)
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DOI: 10.1257/pol.20180659

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