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

Author

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  • Bellemare, Marc F.
  • Barrett, Christopher B.
  • Just, David R.
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.

Suggested Citation

  • Bellemare, Marc F. & Barrett, Christopher B. & Just, David R., 2010. "The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia," MPRA Paper 24457, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24457
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    References listed on IDEAS

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    Cited by:

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    2. Bellemare, Marc F. & Carnes, Nicholas, 2015. "Why do members of congress support agricultural protection?," Food Policy, Elsevier, vol. 50(C), pages 20-34.
    3. Nicole M. Mason & Robert J. Myers, 2013. "The effects of the Food Reserve Agency on maize market prices in Zambia," Agricultural Economics, International Association of Agricultural Economists, vol. 44(2), pages 203-216, March.
    4. Michelson, Hope & Reardon, Thomas & Perez, Francisco, 2012. "Small Farmers and Big Retail: Trade-offs of Supplying Supermarkets in Nicaragua," World Development, Elsevier, vol. 40(2), pages 342-354.
    5. Bellemare, Marc F., 2011. "Rising food prices, food price volatility, and political unrest," MPRA Paper 31888, University Library of Munich, Germany.
    6. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2012. "Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries," World Development, Elsevier, vol. 40(4), pages 715-730.
    7. Pierre-Emmanuel Darpeix, 2019. "Literature review on the consequences of food price spikes and price volatility," Working Papers hal-02072329, HAL.
    8. Gilles Quentin Kane & Gwladys Laure Mabah Tene & Jean Joël Ambagna & Isabelle Piot-Lepetit & Fondo Sikod, 2015. "The impact of food price volatility on consumer welfare in Cameroon," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    9. Sarris, Alexander, 2013. "Food commodity price volatility and food insecurity," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 2(3), pages 1-24, December.
    10. Benin, Samuel & Johnson, Michael E. & Abokyi, Emmanuel & Ahorbo, Gerald & Jimah, Kipo & Nasser, Gamel & Owusu, Victor & Taabazuing, Joe & Tenga, Albert, 2013. "Revisiting agricultural input and farm support subsidies in Africa: The case of Ghana’s mechanization, fertilizer, block farms, and marketing programs:," IFPRI discussion papers 1300, International Food Policy Research Institute (IFPRI).
    11. Alexandros Sarris, 2014. "Trade, food and welfare," Chapters, in: Raghbendra Jha & Raghav Gaiha & Anil B. Deolalikar (ed.), Handbook on Food, chapter 13, pages 325-352, Edward Elgar Publishing.
    12. Pierre-Emmanuel Darpeix, 2019. "Literature review on the consequences of food price spikes and price volatility," PSE Working Papers hal-02072329, HAL.
    13. von Braun, Joachim & Tadesse, Getaw, 2012. "Global Food Price Volatility and Spikes: An Overview of Costs, Causes, and Solutions," Discussion Papers 120021, University of Bonn, Center for Development Research (ZEF).

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    More about this item

    Keywords

    Price Fluctuations; Price Stabilization; Price Risk; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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