Cheap Food and Resource Allocation in Central America

During the 1950-1979 period, the governments of Central America often pursued “cheap-food” policies. A general-equilibrium model is employed to show how these policies contributed to the resource-allocation patterns observed in the region during this period. The model also shows how cheap-food policies contributed to the observed shift in the functional distribution of income from wages to rents and profits. An empirical test verifies the contribution of bean-pricing policy to the shift in land resources away from food crops in Costa Rica, and the causes behind the relaxation of cheap-food policies in the 1980s are discussed.