Analysis of the policy of minimum support prices: the case of the Prize for Product Disposal

Abstract

Since 1997, the Reward for Flowing of Product (PEP) became the main mechanism to conduct the Minimum Prices Guarantee Policy (PGPM) of the Brazilian government. The PEP is a subsidy paid by the federal government, aimed at the flow of product from a region with excess of supply to another with shortage of this product. The objective of this paper was to analyze this program based on auction theory. Certain characteristics are desirable for proper functioning of this program, such as have the greatest possible number of participants in the auction, know the target market of the product, control the quantity of the product offered and the value of the opening reward. Among the results of this paper, it was possible to observe that the efficiency of the auctions conducted within the PEP program can be improved in various aspects.