A COMMENT ON THE WELFARE IMPACTS OF COMMODITY PRICE VOLATILITY: EVIDENCE FROM RURAL ETHIOPIA

This comment discusses the robustness of the policy implications of Bellemare, Barrett, and Just's paper, The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia (2013). Bellemare, Barrett, and Just present a theoretical and empirical approach to the estimation of willingness to pay for food price stabilization that accounts for the covolatility of prices, making a significant contribution to the literature. However, in the course of applying their model to data from rural Ethiopia, the authors make an empirical assumption in the treatment of zero-valued income households that produces a distortion in the distribution of household budget shares. This comment identifies the consequences of this assumption for the estimated relationship of poor and wealthy households' willingness to pay for food commodity price stabilization, and shows the results one would obtain under a different, distribution-preserving treatment of zero-valued income. The key finding is that the distributional benefit incidence of food price stabilization found in Bellemare, Barrett, and Just (2013) is reversed when the budget share of marketable surplus is calculated over observed, as opposed to mean, household income where available.