How does commodity price volatility affect the welfare of rural households in developing countries, for whom hedging and consumption smoothing are often difficult? When governments choose to intervene in order to stabilize commodity prices, as they often do, who gains the most? This article develops an analytical framework and an empirical strategy to answer those questions, along with illustrative empirical results based on panel data from rural Ethiopian households. Contrary to conventional wisdom, we find that the welfare gains from eliminating price volatility are increasing in household income, making food price stabilization a distributionally regressive policy in this context.
Bibliographical noteFunding Information:
These data are made available by the Department of Economics at Addis Ababa University (AAU), the Centre for the Study of African Economies (CSAE) at Oxford University, and the International Food Policy Research Institute (IFPRI). Funding for data collection was provided by the Economic and Social Research Council (ESRC), the Swedish International Development Agency (SIDA), and the U.S. Agency for International Development (USAID). The preparation of the public release version of the ERHS data was supported in part by the World Bank, but AAU, CSAE, IFPRI, ESRC, SIDA, USAID, and the World Bank are not responsible for any errors in these data or for their use or interpretation.
Copyright 2013 Elsevier B.V., All rights reserved.
- commodity prices
- price risk
- price stabilization
- price volatility