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Crowding out of private stocks by public stocks

Author

Listed:
  • Sanghyo Kim

    (Center for Food and Marketing Research, Korea Rural Economic Institute, Naju, Republic of Korea)

  • Carl Zulauf

    (Department of Agricultural, Environmental and Development Economics, Ohio State University, Columbus, OH, USA)

Abstract

Public stocks held by government have emerged as a food security issue as well as an issue in the Doha Round of World Trade Organization talks. Understanding the impact of public stocks requires understanding their crowding out effect on private stocks. A conceptual model of this crowding out effect is developed. It utilises a call option associated with the release of public stocks. The model reveals that the crowding out effect on private stocks decreases as public stocks increase, in contrast to constant marginal crowding out reported by earlier studies. Crowding out of private stocks is also a function of the commodity's demand function, implying crowding out can vary by commodity. It is likely to be highest for commodities with the most inelastic demand. These commodities include wheat, rice, and other food staples often held as public stocks. Empirical analysis confirms these and other insights from the conceptual model.

Suggested Citation

  • Sanghyo Kim & Carl Zulauf, 2019. "Crowding out of private stocks by public stocks," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(11), pages 520-528.
    • Handle: RePEc:caa:jnlage:v:65:y:2019:i:11:id:34-2019-agricecon
    DOI: 10.17221/34/2019-AGRICECON
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