Do, Quy-ToanLevchenko, Andrei A.Ravallion, Martin2013-09-042013-09-042013-05https://hdl.handle.net/10986/15588In a world with volatile food prices, countries have an incentive to shelter their populations from induced real income shocks. When some agents are net food producers while others are net consumers, there is scope for insurance between the two groups. A domestic social protection scheme would therefore transfer resources away from the former group to the latter in times of high food prices, and do the reverse otherwise. This paper shows that in the presence of consumer preference heterogeneity, implementing the optimal social protection policy can potentially induce higher food price volatility. Such policy indeed generates a counter-cyclical demand shock that amplifies the effects of the underlying food shortage. The results call for a reassessment of food stabilization policies. In particular, the authors urge caution against the systematic condemnation of trade insulation practices.en-USCC BY 3.0 IGOADVERSE SELECTIONAGGREGATE DEMANDAGGREGATE SUPPLYAGRICULTURAL ECONOMICSAGRICULTUREASSET MARKETASSET MARKETSBENCHMARKBUDGET CONSTRAINTSCLASSICAL ECONOMISTSCOMMERCIAL POLICYCOMMODITIESCOMMODITYCOMMODITY PRICECONSUMERSDEMAND FOR FOODDEMAND FUNCTIONSDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT POLICYDOMESTIC MARKETDOMESTIC MARKETSDOMESTIC PRICESECONOMIC HISTORYEQUILIBRIUMEQUILIBRIUM PRICEEQUILIBRIUM PRICESEQUILIBRIUM VALUESEXPENDITUREEXPORTSEXTERNAL TRADEEXTERNALITYEXTREME POVERTYFAIRFAMINEFAMINESFEEDFINANCIAL CRISISFINANCIAL INTEGRATIONFOOD AVAILABILITYFOOD CONSUMPTIONFOOD CRISISFOOD EXPORTFOOD POLICYFOOD POLICY RESEARCHFOOD PRICEFOOD PRICE STABILIZATIONFOOD PRICESFOOD PRODUCERSFOOD PRODUCTIONFOOD SECURITYFOOD SHORTAGEFOREIGN MARKETFREE TRADEGLOBAL FOOD SECURITYGLOBALIZATIONGOVERNMENT INTERVENTIONGOVERNMENT INTERVENTIONSGRAIN MARKETSGRAIN RESERVESGRAINSHAZARDHUNGERIFPRIINCOMEINCOMESINSURANCEINSURANCE MARKETINSURANCE MARKETSINSURANCE POLICIESINSURANCE POLICYINTERNATIONAL FOOD POLICY RESEARCH INSTITUTEINTERNATIONAL MARKETSINTERNATIONAL TRADELIBERALIZATIONMORAL HAZARDOPTIMIZATIONOUTPUTPRICE DISTORTIONPRICE DISTORTIONSPRICE INCREASESPRICE LEVELSPRICE POLICYPRICE STABILIZATIONPRICE SUBSIDYPRICE TAKERSPRICE VOLATILITYREAL INCOMEREAL INCOME DECLINESRICERISK SHARINGSECURITIESSOCIAL PROTECTIONSPOT MARKETSTABILIZATION POLICIESSTARVATIONSUBSTITUTESUBSTITUTIONSUPPLY CURVESUPPLY SHOCKSUPPLY SHOCKSTRADE BALANCETRADE POLICIESTRADE POLICYTRANSACTION COSTSVULNERABLE GROUPSWAGESWEALTHWORLD ECONOMYWORLD FOOD SUPPLYWorld Bank10.1596/1813-9450-6448