Title : The public management of price risk after a supply shock: storage vs. price floor
Author(s) : Julien JACOB, Antoine LEBLOIS, Marielle BRUNETTE
Abstract : Exogenous shocks frequently have adverse effects on commodity markets. This article examines the fall of commodity price resulting from such shocks and explores strategies to manage these declines. Specifically, we compare two public management tools: a storage policy and the implementation of a price floor. To analyze these policies, we develop a tractable theoretical welfare model that we simulate. Using a case study of timber price drops following a storm, we demonstrate that a price floor is generally socially beneficial from a broader perspective but can be disadvantageous for consumer-taxpayers in the event of a storm of intermediate intensity. Additionally, our findings suggest that a storage policy is socially preferable in cases of low-intensity storms, whereas a price floor becomes more effective for higher-intensity events. Sensitivity analyses are conducted to assess the robustness of these results.
Key-words : risk, price, forest, policy, floor-price, storage, storm
JEL Classification : D61; D81; Q23
