tion.<sup>5</sup> Although development economics research demonstrates that food security and related coping strategies to preserve it are likely to be more important for welfare assessments than standard measures of welfare change under expected utility, they do not provide any monetary assessments. To allocate resources to their most profitable use, we would like to deal with the marginal cost of stabilization policies and their marginal benefits. At the present time this is not possible, and even in the future is likely to be difficult. Contrary to infrastructure spending which has tangible outcomes, the benefits from price stabilization are intangible and depend heavily on households' coping strategies. They depend on improvements in health, nutrition, schooling, child labor, and savings. As Grosh et al. (2008, Ch. 3) note in relation to measuring the benefits of spending on safety nets, many economists believe that such a measure is not feasible. And even if it were, it would remain an academic exercise and a function of many behavioral assumptions and hypotheses about the future state of the economy.

In the absence of more precise conclusions about the welfare cost of price instability, in what follows we assume that, at least in poor countries, the difficulty of coping with high food prices creates large and potentially irreversible welfare losses.

# **2.3 Political economy and redistribution**

Previous discussions have focused on market failures as justification for food price stabilization policies; but market failures are not necessary for socially unacceptable outcomes to emerge. Even with complete and well-functioning markets, price booms can result in dire poverty and starvation for the poorest. These are not socially desirable outcomes, and a free market will not prevent them. So given the large distributive effects at stake, public intervention would be likely to emerge even without the market failures mentioned above.

Anderson et al. (2010) remind us that public support for agriculture increases with national per capita income and its importance is greater when a country’s agricultural comparative advantage is weaker. It is unlikely to emerge from any market failure, but it represents the increasing role of farm lobbies as countries develop. This political economy motivation for stabilization policies is especially strong in developed countries where it is difficult to find compelling market failures to justify this scale of intervention. It is probably also present in some developing countries – and increasing with economic growth. For example, the way the minimum support price can be increased in India without any consideration for plentiful public stocks and further utilization of these stocks, is a good indication of the influence of farmers in the policy process.

> 5 One example of this framework applied to policy design is Giordani, Rocha, and Ruta (2012). They assume agents are loss averse: they value losses more than gains. Consumers experience losses when prices exceed some reference price, and vice versa for producers. It is consistent also with the contradictory injunctions from non-governmental and international organizations, for which food prices are always either too low or too high (Swinnen and Squicciarini 2012).

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