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International Risk Sharing for Food Staples

  • Economics Discussion Papers
  • February 21, 2022
  • Bharat Ramaswami,
  • Scott C. Bradford, Digvijay Singh Negi, Bharat Ramaswami

The global output of food staples is far more stable than most individual nations’ outputs, but does this lead to consumption risk sharing? This paper applies tools from the risk sharing literature to address this question for rice, wheat, and maize, using a multilateral risk sharing model that, unlike the canonical model, accounts for trade costs. While the data show that optimal risk sharing does not occur, the wheat market comes closest to the idealized model. Our analysis also implies that both trade and storage play significant roles in smoothing domestic output shocks. Further, we find that risk sharing tends to rise with a nation’s income.

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