Bellemare, Marc F. and Barrett, Christopher B. and Just, David R. (2010): The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia.
Download (326kB) | Preview
Many governments try to stabilize commodity prices based on the widespread belief that households value price stability and that the poor especially benefit from food price stabilization. We derive an exact measure of multivariate price risk aversion and of associated household willingness to pay for price stabilization across multiple commodities. Using data from a panel of Ethiopian households, we estimate that the average household would be willing to pay 6-32 percent of its income to eliminate fluctuations in the prices of the seven primary food commodities. But not everyone benefits from price stabilization. Contrary to conventional wisdom, the welfare gains from eliminating price fluctuations would be concentrated in the upper 40 percent of the income distribution, making food price stabilization a distributionally regressive policy in this context.
|Item Type:||MPRA Paper|
|Original Title:||The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia|
|Keywords:||Price Fluctuations; Price Stabilization; Price Risk; Risk and Uncertainty|
|Subjects:||D - Microeconomics > D1 - Household Behavior and Family Economics > D13 - Household Production and Intrahousehold Allocation
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
|Depositing User:||Marc F Bellemare|
|Date Deposited:||18. Aug 2010 01:21|
|Last Modified:||24. Mar 2015 09:11|
Acemoglu, D. (2010), “Theory, General Equilibrium, Political Economy, and Empirics in Development Economics,” Journal of Economic Perspectives 24(3): 17-32.
Baron, D.P. (1970), “Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition,” International Economic Review 11(3): 463-480.
Barrett, C.B. (1996), “On Price Risk and the Inverse Farm Size–Productivity Relationship,” Journal of Development Economics 51(2): 193-215.
Barrett, C.B. (1999), “The Microeconomics of the Developmental Paradox: On the Political Economy of Food Price Policy,” Agricultural Economics 20(2): 159-172.
Bates, R. (1981), Markets and States in Tropical Africa, Berkeley: University of California Press.
Bellemare, M.F., and C.B. Barrett (2006), “An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia,” American Journal of Agricultural Economics 88(2): 324-337.
Browning, M., and P.-A. Chiappori (1998), “Efficient Intrahousehold Allocations: A General Characterization and Empirical Tests,” Econometrica 66(6): 1241-1278.
Cashin, P., and J.C. McDermott (2002), “The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability,” IMF Staff Papers, 49(2): 175-99.
Chavas, J.-P., and M.T. Holt (1993), “Acreage Decisions under Risk: The Case of Corn and Soybeans,” American Journal of Agricultural Economics 72(3): 529-538.
Deaton, A., and J. Muellbauer (1980), “An Almost Ideal Demand System,” American Economic Review, 70(3): 312-326.
de Janvry, A., M. Fafchamps, and É. Sadoulet (1991), “Peasant Household Behavior with Missing Markets: Some Paradoxes Explained,” Economic Journal 101(409): 1400-1417.
Dercon, S., and P. Krishnan (1998), “Changes in Poverty in Rural Ethiopia 1989-1995: Measurement, Robustness Tests and Decomposition,” Working Paper, Centre for the Study of African Economies, Oxford University.
Deschamps, R. (1973), “Risk Aversion and Demand Functions,” Econometrica 41(3): 455-465.
Epstein, L. (1975), “A Disaggregate Analysis of Consumer Choice under Uncertainty,” Econometrica 43(5-6): 877-892.
Finkelshtain, I. and J. Chalfant (1991), “Marketed Surplus under Risk: Do Peasants Agree with Sandmo?,” American Journal of Agricultural Economics 73(3): 557-567.
Finkelshtain, I. and J. Chalfant (1997), “Commodity Price Stabilization in a Peasant Economy,” American Journal of Agricultural Economics 79(4): 1208-1217.
Friend, I. and M.E. Blume (1975), “The Demand for Risky Assets,” American Economic Review 65(5): 900-922.
Goetz, S.J. (1992) “A Selectivity Model of Household Food Marketing Behavior in Sub-Saharan Africa,” American Journal of Agricultural Economics 74(2): 444-452.
Hanoch, G. (1977), “Risk Aversion and Consumer Preferences,” Econometrica 45(2): 413-426.
Hansen, L.P. and K.J. Singleton (1982), “Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns,” Journal of Political Economy 91(2): 249-265.
Henley, A. and J. Peirson (1997), “Non-Linearities in Electricity Demand and Temperature: Parametric Versus Non-Parametric Methods,” Oxford Bulletin of Economics and Statistics 59(1): 149–162.
Hirshleifer, J. and J.G. Riley (1992), The Analytics of Uncertainty and Information, Cambridge: Cambridge University Press.
Brown, O., A. Crawford, and J. Gibson (2008), “Boom or Bust: How Commodity Price Volatility Impedes Poverty Reduction, and What to Do About It,” IISD Policy Report.
Henley, A., and J. Peirson (1997), “Non-Linearities in Electricity Demand and Temperature: Parametric Versus Non-Parametric Methods,” Oxford Bulletin of Economics and Statistics 59(1): 149-162.
Jacks, D.S., K.H. O'Rourke, and J.G. Williamson (2009), “Commodity Price Volatility and World Market Integration since 1700,” NBER Working Paper 14748.
Knudsen, O. and J. Nash (1990), “Domestic Price Stabilization Schemes in Developing Countries,” Economic Development and Cultural Change 38(3): 539-558.
Krueger, A.O., M. Schiff and A. Valdes (1988), “Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies,” World Bank Economic Review 2(3): 255-271.
Lindert, P.H. (1991), “Historical Patterns of Agricultural Policy,” in C.P. Timmer, ed., Agriculture and the State, Ithaca: Cornell University Press.
Lipton, M. (1977), Why poor people stay poor: urban bias in world development Cambridge, MA: Harvard University Press.
MaCurdy, T.E., and J.H. Pencavel (1986), “Testing between Competing Models of Wage and Employment Determination in Unionized Markets,” Journal of Political Economy 94(3): S3-S39.
Newbery, D.M.G. (1989), “The Theory of Food Price Stabilization,” Economic Journal 99(398): 1065-1082.
Newbery, D.M.G, and J.E. Stiglitz (1981), The Theory of Commodity Price Stabilization, Oxford, UK: Oxford University Press.
Olson, M. (1965), The Logic of Collective Action: Public Goods and the Theory of Groups, Cambridge, MA: Harvard University Press.
Pratt, J.W. (1964), “Risk Aversion in the Small and in the Large,” Econometrica 32(1-2): 122-136.
Roache, S. (2010), “What Explains the Rise in Food Price Volatility?,” Working Paper, International Monetary Fund.
Royston, P., and D.G. Altman (1997), “Approximating Statistical Functions by Using Fractional Polynomial Regression,” Journal of the Royal Statistical Society: Series D (The Statistician), 46(3): 411-422.
Saha, A., C.R. Shumway, and H. Talpaz (1994), “Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility,” American Journal of Agricultural Economics, 76(2): 173-184.
Sandmo, A. (1971), “On the Theory of the Competitive Firm under Price Uncertainty,” American Economic Review 61(1): 65-73.
Sherlund, S., C.B. Barrett, and A.A. Adesina (2002), “Smallholder Technical Efficiency Controlling for Environmental Production Conditions,” Journal of Development Economics, 69(1): 85-101.
Singh, I., L. Squire, and J. Strauss (1986), Agricultural Household Models, Baltimore, MD: Johns Hopkins University Press.
Timmer, C.P. (1989), Food Price Stabilization: Rationale, Design, and Implementation, Cambridge, MA: Harvard Institute for International Development.
Turnovsky, S.J. (1978), “The Distribution of Welfare Gains from Price Stabilization: A Survey of Some Theoretical Issues,” in F.G. Adams and S.A. Klein, eds., Stabilizing World Commodity Markets, Lexington, MA: Lexington Books.
Turnovsky, S.J., H. Shalit, and A. Schmitz (1980), “Consumer’s Surplus, Price Instability, and Consumer Welfare,” Econometrica 48(1): 135-152.
Verbeek, M., and T. Nijman (1992), “Testing for Selectivity Bias in Panel Data Models,” International Economic Review 33(3): 681-703.
Williams, J.C., Wright, B.D.(1991), Storage and Commodity Markets. Cambridge: Cambridge University Press.
World Bank (2008), World Development Report 2008: Agriculture for Development, Washington, DC: World Bank Publications.