In many developing countries, households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether the characteristics of developing countries explain why governments use such systems. I find an equity-efficiency trade-off: an efficiency-maximizing government will never use ration shops, but a welfare-maximizing one might to redistribute and provide insurance. Welfare gains of ration shops will be highest for necessity goods and goods with high price risk. I calibrate the model for India and find that ration shops are welfare improving for three of the four goods sold through the system today.
"Can Rationing Increase Welfare? Theory and an Application to India's Ration Shop System."
American Economic Journal: Economic Policy,
Consumer Economics: Empirical Analysis
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Business Taxes and Subsidies including sales and value-added (VAT)
Microeconomic Analyses of Economic Development