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Rules versus Discretion in Food Storage Policies
Author(s) -
Gouel Christophe
Publication year - 2013
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aat016
Subject(s) - subsidy , discretion , microeconomics , storage model , economics , welfare , social welfare , constraint (computer aided design) , market economy , computer science , mechanical engineering , political science , law , engineering , operating system
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.