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Abstract
This paper presents a two country model with private stockholders and producers featuring
rational expectations which is used to evaluate emergency reserve, private storage and
trade related policies to stabilize grain prices. Contrary to existing works, this paper
looks at extreme events besides price volatility, both representing political concerns.
Findings illustrate the benefits from trade and that private storage, even if subsidized,
hardly manages to avoid extreme price spikes although it is very efficient in reducing price
volatility. In contrast, a (common) public emergency reserve allows compensating large
supply shortages at a reasonable level of fiscal costs while leaving the lower quantiles of
the price distribution largely unaffected. A private storage subsidy significantly impacts
trade whereas a reserve hardly does. Policy makers looking for stabilization mechanisms
may consider either option or a combination thereof. Free trade is beneficial if stocking
policies match while otherwise a free-rider problem is created.