A Welfare Analysis of Wheat Self-Sufficiency Policy and the Influence on the Barley Market in Iran: A Game Theory Approach

Iran achieved its self-sufficiency goal in wheat production a few years ago, perhaps at the expense of decreasing the production of other grains specially barley as stated by critics in the country. Considering the dependency of wheat and barley markets on each other, policy preference functions were estimated separately for each market. Incorporating political weights, a game theory approach was utilized to investigate welfare impacts of such attempt. Results not only justified the critics' claims, but also indicated that welfare had been transmitted from wheat producers to consumers and the government. Also despite the positive welfare surplus of producers and consumers in the wheat market, high government expenses have led to welfare losses, while barley is associated with welfare gains. Finally, an overall Nash equilibrium occurs as the best strategy between the two markets with a 15% increase in the consumer price of wheat and a 20% decrease in barley production costs. These results undoubtedly imply that optimal social welfare is associated with mitigating the government's role in the wheat market.