The political economy of food price policy during the global food price crisis of 2006-2008

Abstract

This paper finds support for seven political economy hypotheses that influenced governments’ policy choices during the 2006–2008 global food price crisis. Governments focused most heavily on consumer and trade policies rather than on policies designed to increase production. They also preferred policy changes with lower implementation costs, implying that responses to past crises were the best predictor of future actions. To explain the variety of responses and policy failures, a framework is proposed that locates policies along the twin dimensions of unitary vs. fragmented decision-making processes and social welfare maximizing vs. self-interested policy goals. Many of the common policy responses can be explained by a benchmark model of unitary decision makers seeking to increase social welfare. In contrast, fragmented government decision-making, uncertainty, and self-interest generate policy and implementation failures, significant departures from the benchmark model, and reductions in social welfare. Mistrust between government and the private sector causes a lack of transparency, which fuels mistrust and uncertainty, leading to additional policy and implementation failures.