Monday, August 12, 2013

Thialand's Rice Subsidy

The Economist has a good article on the negative consequences of per unit subsidies, in this case the subsidy of rice in Thailand.  Notice that as described in the supply and demand model, a per unit subsidy will increase the price to the producers and decrease the price to the consumers, than without the per unit subsidy.  Thus the producers and consumers gain from the per unit subsidy.  The problem is that the cost of the per unit subsidy to the government in subsidy payments is greater than combined the gains to the producers and consumers.  In the article linked above, the payments are about 4% of GDP, and expected to rise as rice from outside Thailand is being imported to claim some of the subsidy payments.

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