The Inefficiency of Interest‐Rate Subsidies in Commodity Price Stabilization

9 Pages Posted: 24 Mar 2020

See all articles by Bruce L. Gardner

Bruce L. Gardner

University of Maryland - Department of Agricultural & Resource Economics

Ramón López

University of Maryland - Department of Agricultural & Resource Economics

Date Written: August 1996

Abstract

Interest‐rate subsidies have been used to stimulate commodity stockholding, with the intention of stabilizing prices. However, reductions in price variability can be achieved at less government cost using a direct storage subsidy, and it is possible that an interest‐rate subsidy will increase price variability even though the interest subsidy increases mean stocks held. These results are demonstrated using a stochastic dynamic programming model of optimal private storage, with parameter values relevant to agricultural commodity markets, and with particular reference to the U.S. soybean market.

Keywords: commodity storage, inventories, price stabilization, Q110, Q180

Suggested Citation

Gardner, Bruce L. and López, Ramón, The Inefficiency of Interest‐Rate Subsidies in Commodity Price Stabilization (August 1996). American Journal of Agricultural Economics, Vol. 78, Issue 3, pp. 508-516, 1996. Available at SSRN: https://ssrn.com/abstract=3558976 or http://dx.doi.org/10.2307/1243269

Bruce L. Gardner (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

Ramón López

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1281 (Phone)
301-405-9091 (Fax)

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