Crop sharing scheme at drought risk in an open economy

摘要

This paper presents an open economy model qualitatively to investigate the risk sharing effect of a crop sharing system to stabilize food security under drought. Two crop sharing systems are considered in this model: “proportionally divided system” and “forward contract system.” The model reveals the possibility that the proportionally divided system is effective when high drought risks exist and high trade barriers prevent a country from importing crops, and that the forward contract system mitigates drought risk when forward contract is set at prices lower than the prices in the normal condition. Further, this study shows that the proportionally divided system can improve social welfare in the condition of high drought risks and high trade barriers, while a hold-up problem can be caused by the lack of producer incentive to invest in the production of crops.