Cheap Food and Resource Allocation in Central America

Abstract

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.