Maximal Growth when Food Output Is Uncertain
The paper investigates the effects of uncertainty in food output on growth in an economy with an industrial sector and an agricultural sector linked by consumption demand and labour supply relationships. In such an economy, a poor crop raises the relative price of food and hence the wage rate. It is shown that as a result, the maximum expected rate of growth for the economy is less than the maximum rate achievable when the expected food output is produced with certainty. Inventory policy for reducing this cost of uncertainty is analysed, and its efficacy is shown to depend on the change in uncertainty as agriculture acquires more capital.
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