Managing Food Price Volatility in a Large Open Country

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.

Bibliographic Details

Main Authors:	Gouel, Christophe, Gautam, Madhur, Martin, William J., `Martin, Will J.
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2016-02
Subjects:	PROFIT MAXIMIZATION, SUBSTITUTION, PRODUCTION, MULTIPLIERS, PRICE LEVELS, PRICE STABILIZATION, LAGS, STOCK, STABILIZATION POLICIES, SALES, INCOME, INTEREST, EXPECTATIONS, MARGINAL COST, TRADE BARRIERS, INTEREST RATE, EXCHANGE, EXPORTS, DOMESTIC MARKET, ELASTICITY, PRODUCER PRICES, PRIVATE ENTITY, WELFARE, OPTIMIZATION, INCENTIVES, FAIR, EQUILIBRIUM, DISTRIBUTION, VARIABLES, DOMESTIC PRICE, SUBSIDY, PRICE, REAL INCOME, INPUTS, PRICE UNCERTAINTY, FREE TRADE, CASH FLOWS, RISK‐NEUTRAL, TRENDS, CHOICE, STABILIZATION POLICY, PUBLIC POLICY, INFLUENCE, SAVINGS, COSTS, DEVELOPMENT ECONOMICS, DEMAND ELASTICITY, PRICE VOLATILITY, FOOD PRICE, OUTPUTS, SURPLUS, PRODUCTS, EXCHANGE RATES, ECONOMETRICS, INTEREST RATES, LAISSEZ‐FAIRE, FAILURES, CRITERIA, MARKETING, MARKETS, OPEN ECONOMY, PRICE ELASTICITY, PRICE POLICY, TRADE POLICY, PRODUCT, PRICE BEHAVIOR, UTILITY, SUPPLY ELASTICITY, SUBSIDIES, COMMODITY PRICE, TRADE POLICIES, MARKET PRICE, TAXES, PRICE CHANGE, MARKET ECONOMY, INCOMPLETE MARKETS, CONSUMPTION, RISK NEUTRAL, OPPORTUNITY COST, FRAUD, INTERNATIONAL TRADE, VOLATILITY, BARRIERS, MARKET CONDITIONS, MARKET FAILURES, MARKET PRICES, VALUE, PRODUCER PRICE, DEMAND, AGGREGATE DEMAND, PRICE RISK, DEMAND FUNCTION, FLOOR PRICE, CONSUMER PRICE, PRICE STABILITY, TIME VALUE OF MONEY, PRICE CHANGES, AGRICULTURE, CONSUMERS, EQUATIONS, EQUILIBRIUM VALUES, RAPID EXPANSION, MARKET, BENCHMARK, ECONOMIC THEORY, MIDDLE-INCOME COUNTRY, PRICE INSTABILITY, CLOSED ECONOMY, OUTPUT, PRICE MOVEMENTS, BIDDING, TRADE, DOMESTIC PRICES, THEORY, SECURITY, STOCKS, MARKET EQUILIBRIUM, SHARE, SUPPLY, PURCHASING, MARKET POWER, RISK‐AVERSE, CONSUMER PRICE INDEX, WORLD TRADE, COMMUNICATION, COMMODITIES, EXCHANGE RATE, LAISSEZ FAIRE, RISK AVERSION, FOOD PRICES, ARBITRAGE, ACCELERATOR, ECONOMICS RESEARCH, PRICE INDEX, BORDER PRICE, OUTCOMES, MARGINAL UTILITY, COMMODITY, WORLD MARKET, PRICES, VALUE OF MONEY, CASH FLOW, DEVELOPMENT POLICY, STORAGE,
Online Access:	http://documents.worldbank.org/curated/en/2016/02/25860944/managing-food-price-volatility-large-open-country-case-wheat-india https://hdl.handle.net/10986/23728
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