Optimal Food Price Stabilization in a Small Open Developing Country

In poor countries, most governments implement policies aiming to stabilize the prices of staple foods, which often include storage and trade measures insulating their domestic market from the world market. It is of crucial importance to understand...

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Main Authors: Gouel, Christophe, Jean, Sebastien
Format: Policy Research Working Paper
Language:English
Published: 2012
Subjects:
TAX
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120110112649
http://hdl.handle.net/10986/3228
id okr-10986-3228
recordtype oai_dc
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic AGRICULTURAL PRICE
AGRICULTURAL PRICES
AGRICULTURAL TRADE
AGRICULTURE
ARBITRAGE
ARBITRAGES
AVERAGE PRICE
AVERAGE PRICES
BARRIER
BARRIERS TO TRADE
BEHAVIOR OF PRICE
BENCHMARK
BINDING CONSTRAINTS
BORDER PRICE
BUFFER STOCKS
CASH FLOWS
CLOSED ECONOMY
COMMERCIAL POLICY
COMMODITIES
COMMODITY
COMMODITY PRICE
COMMODITY PRICES
CONSUMERS
DEMAND ELASTICITY
DEMAND FUNCTION
DEVELOPING COUNTRIES
DEVELOPING COUNTRY
DEVELOPING ECONOMY
DEVELOPMENT POLICY
DISCOUNTED VALUE
DISTRIBUTION OF TRADE
DOMESTIC MARKET
DOMESTIC MARKETS
DOMESTIC PRICE
DOMESTIC PRICES
DOMESTIC PRODUCTION
DOMESTIC STOCKS
ECONOMETRICS
ECONOMICS
EQUATIONS
EXCESS SUPPLY
EXPECTED UTILITY
EXPECTED VALUE
EXPECTED VALUES
EXPENDITURE
EXPENDITURES
EXPORT BANS
EXPORT PARITY
EXPORT RESTRICTIONS
EXPORT SUBSIDIES
EXPORT TAX
EXPORT TAXES
EXPORTS
FINANCIAL ASSETS
FOOD PRICE
FOOD PRICES
FOREIGN GOODS
FOREIGN TRADE
FREE TRADE
GLOBAL MARKET
GOVERNMENT INTERVENTIONS
IMPORT COMPETITION
IMPORT PARITY
IMPORTS
INCOME ELASTICITY OF DEMAND
INCOMPLETE MARKETS
INEFFICIENCY
INFLATION
INSURANCE
INSURANCE MARKET
INSURANCE MARKETS
INTEREST RATE
INTERNATIONAL COOPERATION
INTERNATIONAL ECONOMICS
INTERNATIONAL TRADE
INVENTORIES
INVENTORY
LOW-INCOME COUNTRIES
MARGINAL BENEFITS
MARGINAL COST
MARGINAL UTILITY
MARGINAL VALUE
MARKET EQUILIBRIUM
MONOPOLY
MULTIPLIERS
NATIONAL INCOME
NET EXPORTS
OPEN ECONOMY
OPPORTUNITY COST
OPPORTUNITY COSTS
OPTIMIZATION
OUTPUT
POLITICAL ECONOMY
PORTFOLIO
POSITIVE TARIFFS
PRICE BAND
PRICE CEILING
PRICE CHANGE
PRICE CHANGES
PRICE CURVE
PRICE CURVES
PRICE DISTORTIONS
PRICE ELASTICITY
PRICE ELASTICITY OF DEMAND
PRICE FLUCTUATIONS
PRICE INSTABILITY
PRICE LEVEL
PRICE LEVELS
PRICE POLICY
PRICE STABILITY
PRICE STABILIZATION
PRICE UNCERTAINTY
PRICE VOLATILITY
PRODUCTION FUNCTION
PROFIT SEEKING
PUBLIC POLICIES
PUBLIC POLICY
PURCHASING
REAL INCOME
RISK AVERSE
RISK AVERSION
RISK NEUTRAL
RISK PREMIUM
SALE
SAVINGS
SECURITY CONCERNS
SMALL COUNTRY
SMALL ECONOMY
SOCIAL WELFARE
STABILIZATION POLICIES
STABILIZATION POLICY
STOCK MARKET
STOCK PRICE
STOCKS
SUPPLY CURVES
SUPPLY ELASTICITY
SURPLUS
SURPLUSES
TARIFF POLICY
TARIFF REDUCTION
TAX
TAXATION
TERMS OF TRADE
TRADE BALANCE
TRADE BARRIER
TRADE DISCIPLINES
TRADE MODEL
TRADE MODELS
TRADE OPENNESS
TRADE POLICIES
TRADE POLICY
TRADE RESTRICTIONS
TRADE TAXES
TRADES
UTILITY FUNCTION
WEALTH
WORLD MARKET
WORLD MARKETS
WORLD TRADE
spellingShingle AGRICULTURAL PRICE
AGRICULTURAL PRICES
AGRICULTURAL TRADE
AGRICULTURE
ARBITRAGE
ARBITRAGES
AVERAGE PRICE
AVERAGE PRICES
BARRIER
BARRIERS TO TRADE
BEHAVIOR OF PRICE
BENCHMARK
BINDING CONSTRAINTS
BORDER PRICE
BUFFER STOCKS
CASH FLOWS
CLOSED ECONOMY
COMMERCIAL POLICY
COMMODITIES
COMMODITY
COMMODITY PRICE
COMMODITY PRICES
CONSUMERS
DEMAND ELASTICITY
DEMAND FUNCTION
DEVELOPING COUNTRIES
DEVELOPING COUNTRY
DEVELOPING ECONOMY
DEVELOPMENT POLICY
DISCOUNTED VALUE
DISTRIBUTION OF TRADE
DOMESTIC MARKET
DOMESTIC MARKETS
DOMESTIC PRICE
DOMESTIC PRICES
DOMESTIC PRODUCTION
DOMESTIC STOCKS
ECONOMETRICS
ECONOMICS
EQUATIONS
EXCESS SUPPLY
EXPECTED UTILITY
EXPECTED VALUE
EXPECTED VALUES
EXPENDITURE
EXPENDITURES
EXPORT BANS
EXPORT PARITY
EXPORT RESTRICTIONS
EXPORT SUBSIDIES
EXPORT TAX
EXPORT TAXES
EXPORTS
FINANCIAL ASSETS
FOOD PRICE
FOOD PRICES
FOREIGN GOODS
FOREIGN TRADE
FREE TRADE
GLOBAL MARKET
GOVERNMENT INTERVENTIONS
IMPORT COMPETITION
IMPORT PARITY
IMPORTS
INCOME ELASTICITY OF DEMAND
INCOMPLETE MARKETS
INEFFICIENCY
INFLATION
INSURANCE
INSURANCE MARKET
INSURANCE MARKETS
INTEREST RATE
INTERNATIONAL COOPERATION
INTERNATIONAL ECONOMICS
INTERNATIONAL TRADE
INVENTORIES
INVENTORY
LOW-INCOME COUNTRIES
MARGINAL BENEFITS
MARGINAL COST
MARGINAL UTILITY
MARGINAL VALUE
MARKET EQUILIBRIUM
MONOPOLY
MULTIPLIERS
NATIONAL INCOME
NET EXPORTS
OPEN ECONOMY
OPPORTUNITY COST
OPPORTUNITY COSTS
OPTIMIZATION
OUTPUT
POLITICAL ECONOMY
PORTFOLIO
POSITIVE TARIFFS
PRICE BAND
PRICE CEILING
PRICE CHANGE
PRICE CHANGES
PRICE CURVE
PRICE CURVES
PRICE DISTORTIONS
PRICE ELASTICITY
PRICE ELASTICITY OF DEMAND
PRICE FLUCTUATIONS
PRICE INSTABILITY
PRICE LEVEL
PRICE LEVELS
PRICE POLICY
PRICE STABILITY
PRICE STABILIZATION
PRICE UNCERTAINTY
PRICE VOLATILITY
PRODUCTION FUNCTION
PROFIT SEEKING
PUBLIC POLICIES
PUBLIC POLICY
PURCHASING
REAL INCOME
RISK AVERSE
RISK AVERSION
RISK NEUTRAL
RISK PREMIUM
SALE
SAVINGS
SECURITY CONCERNS
SMALL COUNTRY
SMALL ECONOMY
SOCIAL WELFARE
STABILIZATION POLICIES
STABILIZATION POLICY
STOCK MARKET
STOCK PRICE
STOCKS
SUPPLY CURVES
SUPPLY ELASTICITY
SURPLUS
SURPLUSES
TARIFF POLICY
TARIFF REDUCTION
TAX
TAXATION
TERMS OF TRADE
TRADE BALANCE
TRADE BARRIER
TRADE DISCIPLINES
TRADE MODEL
TRADE MODELS
TRADE OPENNESS
TRADE POLICIES
TRADE POLICY
TRADE RESTRICTIONS
TRADE TAXES
TRADES
UTILITY FUNCTION
WEALTH
WORLD MARKET
WORLD MARKETS
WORLD TRADE
Gouel, Christophe
Jean, Sebastien
Optimal Food Price Stabilization in a Small Open Developing Country
geographic_facet The World Region
The World Region
relation Paper is funded by the Knowledge for Change Program (KCP),Policy Research working paper ; no. WPS 5943
description In poor countries, most governments implement policies aiming to stabilize the prices of staple foods, which often include storage and trade measures insulating their domestic market from the world market. It is of crucial importance to understand the precise motivations and efficiency of those interventions, because they can have consequences worldwide. This paper addresses those issues by analyzing the case of a small, open developing country confronted by shocks to both the crop yield and foreign price. In this model, government interventions may be justified by the lack of an insurance market for food prices. Considering this market imperfection, the authors design optimal public interventions through trade and storage policies. They show that an optimal trade policy largely consists of subsidizing imports and taxing exports, which benefits consumers at the expense of producers. Import subsidies alleviate the non-negativity of food storage. In other words, when stocks are exhausted, subsidizing imports prevents domestic price spikes. One striking result: an optimal storage policy on its own is detrimental to consumers, since its stabilizing benefits leak into the world market and it raises the average domestic price. By contrast, an optimal combination of storage and trade policies results in a powerful stabilizing effect for domestic food prices.
format Publications & Research :: Policy Research Working Paper
author Gouel, Christophe
Jean, Sebastien
author_facet Gouel, Christophe
Jean, Sebastien
author_sort Gouel, Christophe
title Optimal Food Price Stabilization in a Small Open Developing Country
title_short Optimal Food Price Stabilization in a Small Open Developing Country
title_full Optimal Food Price Stabilization in a Small Open Developing Country
title_fullStr Optimal Food Price Stabilization in a Small Open Developing Country
title_full_unstemmed Optimal Food Price Stabilization in a Small Open Developing Country
title_sort optimal food price stabilization in a small open developing country
publishDate 2012
url http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120110112649
http://hdl.handle.net/10986/3228
_version_ 1764386640343597056
spelling okr-10986-32282021-04-23T14:02:08Z Optimal Food Price Stabilization in a Small Open Developing Country Gouel, Christophe Jean, Sebastien AGRICULTURAL PRICE AGRICULTURAL PRICES AGRICULTURAL TRADE AGRICULTURE ARBITRAGE ARBITRAGES AVERAGE PRICE AVERAGE PRICES BARRIER BARRIERS TO TRADE BEHAVIOR OF PRICE BENCHMARK BINDING CONSTRAINTS BORDER PRICE BUFFER STOCKS CASH FLOWS CLOSED ECONOMY COMMERCIAL POLICY COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES CONSUMERS DEMAND ELASTICITY DEMAND FUNCTION DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMY DEVELOPMENT POLICY DISCOUNTED VALUE DISTRIBUTION OF TRADE DOMESTIC MARKET DOMESTIC MARKETS DOMESTIC PRICE DOMESTIC PRICES DOMESTIC PRODUCTION DOMESTIC STOCKS ECONOMETRICS ECONOMICS EQUATIONS EXCESS SUPPLY EXPECTED UTILITY EXPECTED VALUE EXPECTED VALUES EXPENDITURE EXPENDITURES EXPORT BANS EXPORT PARITY EXPORT RESTRICTIONS EXPORT SUBSIDIES EXPORT TAX EXPORT TAXES EXPORTS FINANCIAL ASSETS FOOD PRICE FOOD PRICES FOREIGN GOODS FOREIGN TRADE FREE TRADE GLOBAL MARKET GOVERNMENT INTERVENTIONS IMPORT COMPETITION IMPORT PARITY IMPORTS INCOME ELASTICITY OF DEMAND INCOMPLETE MARKETS INEFFICIENCY INFLATION INSURANCE INSURANCE MARKET INSURANCE MARKETS INTEREST RATE INTERNATIONAL COOPERATION INTERNATIONAL ECONOMICS INTERNATIONAL TRADE INVENTORIES INVENTORY LOW-INCOME COUNTRIES MARGINAL BENEFITS MARGINAL COST MARGINAL UTILITY MARGINAL VALUE MARKET EQUILIBRIUM MONOPOLY MULTIPLIERS NATIONAL INCOME NET EXPORTS OPEN ECONOMY OPPORTUNITY COST OPPORTUNITY COSTS OPTIMIZATION OUTPUT POLITICAL ECONOMY PORTFOLIO POSITIVE TARIFFS PRICE BAND PRICE CEILING PRICE CHANGE PRICE CHANGES PRICE CURVE PRICE CURVES PRICE DISTORTIONS PRICE ELASTICITY PRICE ELASTICITY OF DEMAND PRICE FLUCTUATIONS PRICE INSTABILITY PRICE LEVEL PRICE LEVELS PRICE POLICY PRICE STABILITY PRICE STABILIZATION PRICE UNCERTAINTY PRICE VOLATILITY PRODUCTION FUNCTION PROFIT SEEKING PUBLIC POLICIES PUBLIC POLICY PURCHASING REAL INCOME RISK AVERSE RISK AVERSION RISK NEUTRAL RISK PREMIUM SALE SAVINGS SECURITY CONCERNS SMALL COUNTRY SMALL ECONOMY SOCIAL WELFARE STABILIZATION POLICIES STABILIZATION POLICY STOCK MARKET STOCK PRICE STOCKS SUPPLY CURVES SUPPLY ELASTICITY SURPLUS SURPLUSES TARIFF POLICY TARIFF REDUCTION TAX TAXATION TERMS OF TRADE TRADE BALANCE TRADE BARRIER TRADE DISCIPLINES TRADE MODEL TRADE MODELS TRADE OPENNESS TRADE POLICIES TRADE POLICY TRADE RESTRICTIONS TRADE TAXES TRADES UTILITY FUNCTION WEALTH WORLD MARKET WORLD MARKETS WORLD TRADE In poor countries, most governments implement policies aiming to stabilize the prices of staple foods, which often include storage and trade measures insulating their domestic market from the world market. It is of crucial importance to understand the precise motivations and efficiency of those interventions, because they can have consequences worldwide. This paper addresses those issues by analyzing the case of a small, open developing country confronted by shocks to both the crop yield and foreign price. In this model, government interventions may be justified by the lack of an insurance market for food prices. Considering this market imperfection, the authors design optimal public interventions through trade and storage policies. They show that an optimal trade policy largely consists of subsidizing imports and taxing exports, which benefits consumers at the expense of producers. Import subsidies alleviate the non-negativity of food storage. In other words, when stocks are exhausted, subsidizing imports prevents domestic price spikes. One striking result: an optimal storage policy on its own is detrimental to consumers, since its stabilizing benefits leak into the world market and it raises the average domestic price. By contrast, an optimal combination of storage and trade policies results in a powerful stabilizing effect for domestic food prices. 2012-03-19T17:28:39Z 2012-03-19T17:28:39Z 2012-01-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120110112649 http://hdl.handle.net/10986/3228 English Paper is funded by the Knowledge for Change Program (KCP),Policy Research working paper ; no. WPS 5943 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region