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Optimal Food Price Stabilization in a Small Open Developing Country

Author

Listed:
  • Christophe Gouel
  • Sébastien Jean
Abstract
This paper analyzes the use of storage and trade policies to achieve food price stabilization in a small open developing country. Optimal stabilization policies are identified using a rational expectations storage model with risk-averse consumers and incomplete markets. Without public intervention, price dynamics are driven by domestic productive shocks and international prices. On its own, an optimal storage policy is found to be detrimental to consumers because its stabilizing benefits leak to the world market. In contrast, an optimal combination of storage and trade policies results in a powerful stabilization of domestic food prices. However, such an optimal combination is shown to entail two serious drawbacks: its distributive impacts are large compared to its efficiency benefits, and by distorting excess supply curves, it may aggravate high world price episodes.

Suggested Citation

  • Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," The World Bank Economic Review, World Bank, vol. 29(1), pages 72-101.
    • Handle: RePEc:oup:wbecrv:v:29:y:2015:i:1:p:72-101.
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    File URL: http://hdl.handle.net/10.1093/wber/lht018
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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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