The Interest Cost of a Buffer Stock is Not a Social Cost
The stockpiling of a buffer stock scheme following a good harvest involves no resource cost. It is a gift of the gods and the incomes generated by buying the stock are matched by the producers’ transitory saving or reduced dissaving (relatively to the position without a buffer stock) so that there is no increased consumption to crowd-out anything else, even temporarily. If producers are credit-rationed, the buffer stock does generate increased consumption in the good harvest period but the producers gain from better intertemporal distribution of their consumption exceeds the interest cost of the buffer stock. The policy implications are explored.
KeywordsRubber Income Smit Lawson
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