Economic transition management in a commodity market: the case of the Iranian cement industry

Abstract

Economic transition management is an important issue in countries that have not completely adjusted to the market economy style, as well in countries that temporarily implement price controls. The common concern is to manage the transition in a way that lessens the socio-economic side effects of the process. This paper presents policy recommendations for the Iranian cement industry, which will undergo such a transition. Building on the commodity model literature and supported by interviews with different stakeholders in the industry, we develop a cement price model and calibrate it for Iran's economy. In the base run, we predict a large overshoot in price before it reaches its long-term equilibrium state. Experimenting with the model, we suggest a specific transition policy which starts from drastic rise(s) in price before leaving the price up to the market. In addition, this paper gives some insights into analyzing similar economic policy problems. Copyright © 2010 John Wiley & Sons, Ltd.