Rules versus Discretion in Food Storage Policies

Christophe Gouel

American Journal of Agricultural Economics, 2013, vol. 95, issue 4, 1029-1044

Abstract: This article compares various policies in a rational expectations food storage model with risk-averse consumers and missing insurance markets calibrated to represent a developing country. I consider an optimal storage policy under discretion and two optimal simple rules: a constant private storage subsidy and a price band. The storage subsidy achieves welfare gains similar to the discretionary policy. The price band maximizing social welfare is a price-peg scheme: The floor and ceiling prices are the same, and the capacity constraint represents 11% of the steady-state production level. This price band achieves three-quarters of the gains from the optimal policy under discretion. Copyright 2013, Oxford University Press.

Date: 2013
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