Export Restrictions and Price Insulation During Commodity Price Booms

Abstract

Insulation generates a classic collective-action problem akin to when a crowd stands up in a stadium to get a better view. The variance of the international price will be four times as large as it would be in the absence of price insulation. If all countries used the price transmission elasticity of 0.15 implied by the 85 percent compensating duty under the proposed Special Safeguard Mechanism. The two food commodities that have received the most attention because of price surges are the key staples of wheat and rice. At least high-income countries altered their NACs less in the most recent price spike period than in the two previous ones. That is not inconsistent with the fact that the Uruguay Round Agreement on Agriculture, which came into force with the creation of the WTO in 1995, involved commitments to bind tariffs and subsidies.

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