The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization

Bruce Gardner and Ramon Lopez

American Journal of Agricultural Economics, 1996, vol. 78, issue 3, 508-516

Abstract: Interest-rate subsidies have been used to stimulate commodity stockholding, with the intention of stabilizing prices. However, reductions in price variability can be achieved at less government cost using a direct storage subsidy, and it is possible that an interest-rate subsidy will increase price variability even though the interest subsidy increases mean stocks held. These results are demonstrated using a stochastic dynamic programming model of optimal private storage, with parameter values relevant to agricultural commodity markets, and with particular reference to the U.S. soybean market. Copyright 1996, Oxford University Press.

Date: 1996
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Working Paper: The Inefficiency of Interest Rate Subsidies in Commodity Price Stabilization (1993)
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