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Title:A Dynamic Welfare Analysis of Price Stabilization Policies in the Korean Rice Market
Author(s):Lee, Yong-Kee
Doctoral Committee Chair(s):Garcia, Philip
Department / Program:Agricultural Economics
Discipline:Agricultural Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Agricultural
Political Science, Public Administration
Abstract:Price stabilization policies in the Korean rice market have been examined within a partial adjustment dynamic framework, investigating feasible policy alternatives. A price band buffer stock program (PBBP), PBBP with consumption subsidy and a deficiency payments program where the target prices are set below the expected equilibrium prices are compared based on the stated multiple policy goals, i.e., producers and consumers simultaneous supports, and price stabilization, and on the economic efficiency criteria. Welfare measurement methods are developed in a short-run and longer-run context. The welfare impacts become smaller if the longer-run measure is used because the longer-run measure takes into account the adjustment costs which come from factor fixity in supply and habit formation in demand.
Consistent with previous dynamic analysis, the results suggest that the use of static welfare measures can be misleading. Another important result is that net social gain accrues with a deficiency payments program. This result, which is possible only in a dynamic framework, is striking and not previously identified in the literature. The findings also demonstrate the limitations in pursuing the conflicting goals, i.e., producer and consumer simultaneous supports, by means of the current price band buffer stock program. The program costs increase in proportion to the size of subsidization and the welfare impacts of this program are relatively small compared to the deficiency payments program. In general, the number of effective instruments must be equal to or greater than the number of goals. The empirical results here show that in a stochastic environment there is a high probability that the deficiency payments program alone can achieve the goals of producer and consumer simultaneous supports without resource waste.
The important policy implication derived here is that by switching to the deficiency payments program from the current program, the rice industry in Korea can achieve the potential Pareto improvement, and both producers and consumers will benefit. Nevertheless, if the government continues with its current program, the price bands should be equidistant because such scheme is most efficient.
Issue Date:1993
Description:176 p.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1993.
Other Identifier(s):(UMI)AAI9314901
Date Available in IDEALS:2014-12-17
Date Deposited:1993

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