Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

For individual countries, variable trade barriers can be used to reduce the volatility of domestic relative to world prices. If this is done by countries accounting for a large share of the market, its effect is offset by increases in world price volatility. This study shows the nature of the resulting collective action problem, with the policy being ineffective on average in stabilizing domestic prices while increasing the volatility of the income transfers from terms-of-trade changes. A simple approach to assessing the contribution of insulation to the price increases is developed and used with new estimates of agricultural distortions to assess its contribution to the price spikes in 1972-74 and 2006-08 for rice and wheat. The analysis suggests that 45 percent of the increase in rice prices in 2006-08, and 30 percent of the increase in wheat prices, was due to insulating behavior. One sign of progress since 1972-74 was a substantial reduction in the extent of price-insulating behavior by the industrial countries. This provides little stabilizing benefit in the rice market because countries not classifying themselves at the World Trade Organization as developing account for only 3 percent of world rice consumption. But it does offer some benefit for the wheat market where non-developing countries account for 27 percent of consumption.

Access to Markets --- Agricultural Price Distortions --- Agricultural Trade Policy --- Agriculture --- Collective Action Problem --- Commodities --- Commodity Price Instability --- E-Business --- Emerging Markets --- Food Price Volatility --- Food Prices --- Markets and Market Access --- Price insulation --- Rice Prices --- Rural Development --- Wheat Prices

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

India has pursued an active food security policy for many years, using a combination of trade policy interventions, public distribution of food staples, and assistance to farmers through minimum support prices defended by public stocks. This policy has been quite successful in stabilizing staple food prices, but at a high cost, and with potential risks of unmanageable stock accumulation. Based on a rational expectations storage model representing the Indian wheat market and its relation to the rest of the world, this paper analyzes the cost and welfare implications of this policy and unpacks the contribution of its different elements. To analyze alternative policies, social welfare is assumed to include an objective of price stabilization and optimal policies corresponding to this objective are assessed. Considering fully optimal policies under commitment as well as optimal simple rules, it is shown that adopting simple rules can achieve most of the gains from fully optimal policies, with both potentially allowing for lower stockholding levels and costs.

Accelerator --- Access to Markets --- Aggregate Demand --- Agriculture --- Arbitrage --- Barriers --- Benchmark --- Bidding --- Border Price --- Cash Flow --- Choice --- Closed Economy --- Commodity --- Commodity Price --- Communication --- Consumer Price --- Consumer Price Index --- Consumers --- Consumption --- Costs --- Criteria --- Debt Markets --- Demand --- Demand Elasticity --- Demand Function --- Development Economics --- Development Policy --- Distribution --- Domestic Market --- Domestic Price --- Econometrics --- Economic Theory --- Economic Theory & Research --- Economics Research --- Elasticity --- Emerging Markets --- Equations --- Equilibrium --- Equilibrium Values --- Exchange --- Exchange Rate --- Expectations --- Exports --- Failures --- Fair --- Finance and Financial Sector Development --- Floor Price --- Food Price --- Fraud --- Free Trade --- Incentives --- Income --- Incomplete Markets --- Influence --- Inputs --- Interest --- Interest Rate --- International Economics & Trade --- International Trade --- Lags --- Laissez Faire --- Laissez-Faire --- Macroeconomics and Economic Growth --- Marginal Cost --- Marginal Utility --- Market --- Market Conditions --- Market Economy --- Market Equilibrium --- Market Failures --- Market Power --- Market Price --- Marketing --- Markets --- Markets & Market Access --- Middle-Income Country --- Multipliers --- Open Economy --- Opportunity Cost --- Optimization --- Outcomes --- Output --- Price --- Price Behavior --- Price Change --- Price Elasticity --- Price Index --- Price Instability --- Price Levels --- Price Movements --- Price Policy --- Price Risk --- Price Stability --- Price Stabilization --- Price Uncertainty --- Price Volatility --- Prices --- Private Entity --- Private Sector Development --- Producer Price --- Product --- Production --- Profit Maximization --- Public Policy --- Purchasing --- Rapid Expansion --- Real Income --- Risk Aversion --- Risk Neutral --- Risk-Averse --- Risk-Neutral --- Sales --- Savings --- Security --- Share --- Stabilization Policy --- Stock --- Storage --- Subsidy --- Substitution --- Supply --- Supply Elasticity --- Surplus --- Taxes --- Theory --- Time Value of Money --- Trade --- Trade Barriers --- Trade Policies --- Trade Policy --- Trends --- Utility --- Value --- Value of Money --- Variables --- Volatility --- Welfare --- World Market --- World Trade