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

Marc Bellemare (), Christopher Barrett () and David Just

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Price Fluctuations; Price Stabilization; Price Risk; Risk and Uncertainty (search for similar items in EconPapers)
JEL-codes: D13 E64 D80 Q12 O12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-agr and nep-dev
Date: 2010-08-16
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