Optimal food price stabilisation policy

Christophe Gouel

European Economic Review, 2013, vol. 57, issue C, 118-134

Abstract: This paper proposes a framework for designing optimal food price stabilisation policies in a self-sufficient developing country. It uses a rational expectations storage model with risk-averse consumers and incomplete markets. Government stabilises food prices by carrying public stock and by applying a state-contingent subsidy/tax to production. The policy rules are designed to maximise intertemporal welfare. The optimal policy under commitment crowds out all private stockholding activity by removing the profit opportunity from speculation. The countercyclical subsidy/tax to production helps price stabilisation by subsidising production in periods of scarcity and by taxing it in periods of glut. It contributes little to welfare gains, most of which come from stabilisation achieved through public storage.

Keywords: Food price stabilisation; Incomplete markets; Risk-aversion; Storage (search for similar items in EconPapers)
JEL-codes: D52 Q11 Q18 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:57:y:2013:i:c:p:118-134

DOI: 10.1016/j.euroecorev.2012.10.003

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