The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia

Bellemare, Marc F. and Barrett, Christopher B. and Just, David R. (2010): The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia.

Abstract

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
• Language: English
• 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

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