Raising food prices and welfare change: a simple calibration

Abstract

This article proposes a simple and straightforward method which only requires the information of expenditure share and the compensated own price elasticity to calibrate ex ante consumer welfare change due to price change, while specific price information is not required. It is applied to calculate the welfare loss due to recent food price inflation and find that recent food price inflation after January 2009 in the world causes 22%, 14% and 9% welfare loss, respectively, for low-, middle- and high-income countries.

Keywords:

• compensating variation
• food price
• welfare loss
• low-income countries

JEL Classification:

• Q11
• I32

Notes

¹ The most recent ICP program was set up in 2011, but only 2005 ICP data is available at: http://siteresources.worldbank.org/ICPINT/Resources/270056-1255977254560/6483625-1337016259587/2005ICPReport_FinalwithNewAppG.pdf

² Available at: http://www.ers.usda.gov/data-products/international-food-consumption-patterns.aspx