American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Can Rationing Increase Welfare? Theory and an Application to India's Ration Shop System
American Economic Journal: Economic Policy
(pp. 144–77)
Abstract
In many developing countries, households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether the characteristics of developing countries explain why governments use such systems. I find an equity-efficiency trade-off: an efficiency-maximizing government will never use ration shops, but a welfare-maximizing one might to redistribute and provide insurance. Welfare gains of ration shops will be highest for necessity goods and goods with high price risk. I calibrate the model for India and find that ration shops are welfare improving for three of the four goods sold through the system today.Citation
Gadenne, Lucie. 2020. "Can Rationing Increase Welfare? Theory and an Application to India's Ration Shop System." American Economic Journal: Economic Policy 12 (4): 144–77. DOI: 10.1257/pol.20180659Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- O12 Microeconomic Analyses of Economic Development