Behavioral dimensions of food security.

The empirical regularities of behavioral economics, especially loss aversion, time inconsistency, other-regarding preferences, herd behavior, and framing of decisions, present significant challenges to traditional approaches to food security. The formation of price expectations, hoarding behavior, and welfare losses from highly unstable food prices all depends on these behavioral regularities. At least when they are driven by speculative bubbles, market prices for food staples (and especially for rice, the staple food of over 2 billion people) often lose their efficiency properties and the normative implications assigned by trade theory. Theoretical objections to government efforts to stabilize food prices, thus, have reduced saliency, although operational, financing, and implementation problems remain important, even critical. The experience of many Asian governments in stabilizing their rice prices over the past half century is drawn on in this paper to illuminate both the political mandates stemming from behavioral responses of citizens and operational problems facing efforts to stabilize food prices. Despite the theoretical problems with free markets, the institutional role of markets in economic development remains. All policy instruments must operate compatibly with prices in markets. During policy design, especially for policies designed to alter market prices, incentive structures need to be compatible with respect to both government capacity (bureaucratic and budgetary) and empirical behavior on the part of market participants who will respond to planned policy changes. A new theoretical underpinning to political economy analysis is needed that incorporates this behavioral perspective, with psychology, sociology, and anthropology all likely to make significant contributions.