Agriculture has all the prerequisites to have the market-mechanism arrive at a Pareto-optimal outcome, unlike in the case of public health or primary education. However, this has potentially two challenges. One relates to the fact that farmers do not face a “complete market”, i.e., they face a number of risks such as those relating to weather, yield, and commodity-price shocks, which they are unable to hedge, rendering the eventual outcome less than optimal. The other challenge is, given the long and complicated history, the optimum the agricultural markets arrive at is not always found to be socially optimal even if it turns out to be efficient.
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