Consumers often pay different prices for the same product bought in the same store at the same time. However, the demand estimation literature has ignored that fact using, instead, aggregate measures such as the “list” or average price. In this paper we show that this will lead to biased price coefficients. Furthermore, we perform simple comparative statics simulation exercises for the logit and random coefficient models. In the “list” price case we find that the bias is larger when discounts are higher, proportion of consumers facing discount prices is higher and when consumers are more unwilling to buy the product so that they almost only do it when facing discount. In the average price case we find that the bias is larger when discounts are higher, proportion of consumers that have access to discount are similar to the ones that do not have access and when consumers willingness to buy is very dependent on idiosyncratic shocks. Also bias is less problematic in the average price case in markets with a lot of bargain deals, so that prices are as good as individual. We conclude by proposing ways that the econometrician can reduce this bias using different information that he may have available.

In poor countries, most governments implement policies aiming to stabilize the prices of staple foods, which often include storage and trade measures insulating their domestic market from the world market. It is of crucial importance to understand the precise motivations and efficiency of those interventions, because they can have consequences worldwide. This paper addresses those issues by analyzing the case of a small, open developing country confronted by shocks to both the crop yield and foreign price. In this model, government interventions may be justified by the lack of an insurance market for food prices. Considering this market imperfection, the authors design optimal public interventions through trade and storage policies. They show that an optimal trade policy largely consists of subsidizing imports and taxing exports, which benefits consumers at the expense of producers. Import subsidies alleviate the non-negativity of food storage. In other words, when stocks are exhausted, subsidizing imports prevents domestic price spikes. One striking result: an optimal storage policy on its own is detrimental to consumers...

A pricing reform in Turkey increased the residential electricity tariff by more than 50 percent in 2008. The reform, aimed at encouraging energy efficiency and private investment, sparked considerable policy debate about its potential impact on household welfare. This paper estimates a short-run residential electricity demand function for evaluating the distributional consequences of the tariff reform. The model allows heterogeneity in household price sensitivities and is estimated using a national sample of 18,671 Turkish households. The model also addresses the common problem of missing data in survey research. The study reveals a highly skewed distribution of price elasticities in the population, with rich households three times more responsive in adjusting consumption to price changes than the poor. This is most likely because the poor are close to their minimum electricity consumption levels and have fewer coping options. In addition, the welfare loss of the poorest quintile -- measured by the consumer surplus change as a percentage of income -- is 2.9 times of that of the wealthiest.

The 2006-08 commodity price boom was one of the longest and broadest of the post-World War II period. Apart from strong and sustained economic growth, the recent boom was fueled by numerous factors, including low past investment in extractive commodities, weak dollar, fiscal expansion, and lax monetary policy in many countries, and investment fund activity. At the same time, the combination of adverse weather conditions, the diversion of some food commodities to the production of biofuels, and government policies (including export bans and prohibitive taxes) brought global stocks of many food commodities down to levels not seen since the early 1970s. This in turn accelerated the price increases that eventually led to the 2008 rally. The weakening and/or reversal of these factors coupled with the financial crisis that erupted in September 2008 and the subsequent global economic downturn, induced sharp price declines across most commodity sectors. Yet, the main price indices are still twice as high compared to their 2000 real levels...

National barriers to trade are often varied to insulate domestic markets from international price variability, especially following a sudden spike. This paper explores the extent of that behavior by governments in the case of agricultural products, particularly food staples whose prices have spiked three times over the past four decades. It does so using new annual estimates since 1955 of agricultural price distortions in 75 countries, updated to 2008. Responses by food importers to upward price spikes are shown to be as substantial as those by food exporters, thereby weakening the domestic price-stabilizing effect of intervention by exporters. They also add to the transfer of welfare to food-surplus from food-deficit countries -- the opposite of what is usually thought of when considering inter-sector trade retaliation. Phasing down World Trade Organization-bound import tariffs toward their applied rates would help reduce the legal opportunities for food-deficit countries to raise their import restrictions when international prices slump. To date there is no parallel discipline in the World Trade Organization that limits increases in export restrictions when prices spike upward...

The surge in global commodity prices of the past few years has presented a tremendous development challenge for South Asian countries. The large loss of income from the terms of trade shock has worsened macroeconomic balances, fueled rapid inflation, and hurt growth. Although commodity prices have come down recently, the benefits are being clouded by the emergence of a severe global financial crisis. The adverse consequences of the food price hike for the poor are large; the global financial crisis could further worsen the situation due to falling economic opportunities and government revenues. South Asian countries need to accelerate reforms to avoid facing a serious downturn in economic activity, investment, exports, and income. Governments in South Asia have responded by stabilizing domestic food prices through a number of short-term measures, tightened monetary policy to reduce inflation, and increased spending on a range of safety net programs for the poor. Some of the policies employed, such as export bans...

The practice of Demand-Side Management (DSM) has evolved over the past three decades in response to lessons learned from implementation in different global settings, and also in response to the changing needs of restructured power markets. The most notable change that is occurring today is the inclusion of programs that emphasize price responsiveness in the DSM portfolio. Traditionally, DSM programs were confined to energy efficiency and conservation programs with reliability-driven load management programs being used occasionally to manage emergency situations. Electric prices were taken as a given when designing such programs, hampering the eventual success of all such efforts. This Primer has been written to introduce the new concepts of price-responsive DSM that are currently being investigated in a variety of different market settings. It highlights different criteria and taxonomies for classification and evaluation of DSM programs and recommends programs that will likely provide a better fit with the objectives, expected needs and outcomes of DSM initiatives in developing and transition countries. As defined in this primer, such initiatives include both load shifting programs (that either clip peak loads or shift energy used in the peak period to off-peak periods) and efficiency programs (that reduce the total amount of energy). The purpose of the primer is to provide successful examples of price-responsive DSM programs from the developed world and by discussing their workings...

In January 2006 the price of natural gas supplied to Moldova increased from $80 to $110 per thousand cubic meters (mcm). Prices may increase further in the near future, putting additional pressure on the economy and leading to adverse effects on the poorest households. This study examines the potential impact of higher energy prices on the economy of Moldova by simulating the likely macroeconomic consequences of recent and future price increases. Moreover, it estimates the direct impact on individual households using data drawn from the 2004 Household Budget Survey. It assesses the distributional implications of the price shock, noting how the social impact may vary depending on the intensity of energy use, geographic location, and the relative share of energy in household expenditure. The results suggest that energy price changes could dampen economic growth while putting additional strains on the current account deficit. The impact on the poorest households could be significant and protecting them may require resources in the amount of 0.7 to 1.7 percent of GDP. This study identifies possible policy responses to dampen the shock of the energy price increase and to promote the longer-term objective of reducing energy vulnerability.

This paper investigates the determinants of price differences and market integration among Indonesian provinces, using data from retail cooking oil, rice and sugar markets during the period 1993-2007, and from wholesale maize and soybean markets during the period 1992-2006. The authors measure the degree of integration using co-integration techniques, and calculate average price differences. They use regression analysis to understand the drivers of price differences and market integration. For rice and sugar, they find wide market integration and low price differences, in the range of 5-12 percent. For maize, soybeans and cooking oil, they find less integration and higher price differences (16-22 percent). Integration across provinces is explained by the remoteness and quality of transport infrastructure of a province. Price differences across provinces respond to differences in provincial characteristics such as remoteness, transport infrastructure, output of the commodity, land productivity and income per capita.

Between 1999 and 2008, world oil prices more than quadrupled in real terms. For oil importers, vulnerability to oil price increases, defined as the share of gross domestic product spent on net oil imports, rose considerably. Considering medians, low-income countries had the highest vulnerability in 2008 and the highest increase in vulnerability between 1999 and 2008. When changes in vulnerability were decomposed into several contributing factors, more than two-thirds of 170 countries studied were found to have offset the increase in the value of oil consumption by reducing the oil intensity of gross domestic product. Oil intensity fell in more than half the countries in every income group and in every region of the world, driven by falling energy intensity and, to a lesser extent, the oil share of energy. This study also examines the degree of pass-through to consumers of increases in world prices of gasoline, diesel, kerosene, and liquefied petroleum gas between January 2009 and January 2012, when oil prices in nominal U.S. dollars more than doubled. Retail fuel prices varied by two orders of magnitude in 2012...

With food prices on the rise, understanding the transmission of price shocks, both internationally and domestically, is central for trade policy analysis. This paper examines spatial market integration and its determinants for ten key food products in Bolivia, across the four most important cities, and with the world, over the period 1991-2008. Within Bolivia, markets for onions, chicken, sugar, and to a lower extent for potatoes, cooking oil, wheat flour, and rice are integrated. However, only chicken, sugar, cooking oil, and rice are integrated with world markets, with incomplete and slow transmission. The perennial result of asymmetric price adjustment to foreign shocks also holds for Bolivia: domestic prices respond faster when the world price increases than when it decreases. This points to a perennial recommendation: the importance of stimulating competitive practices to avoid welfare redistribution due to imperfect competition. Infrastructure improvements will also contribute to accessible food prices for the poor.

The surge in global commodity prices of the past few years has presented a tremendous development challenge to South Asian countries. On a net basis South Asia is estimated to have suffered an income loss equivalent to some 9.6 percent of Gross Domestic Product (GDP) between January 2003 and April 2008. Although much of the income loss resulted from the hike in petroleum prices, the surge in food prices between January 2007 and April 2008, especially of staple food ? wheat and rice ? has created tremendous adverse social impact in South Asia. All countries have witnessed unprecedented surge in food prices, although India was able to limit this increase owing to good harvests and timely interventions using stock management and public food distribution. Net food importing countries like Afghanistan, Sri Lanka and Bangladesh have suffered the most from the food price crisis. The emerging global financial crisis is adding fuel to the fire, with expected future adverse consequences for macroeconomic balances and growth.

This report updates and extends previous work by a statistical analysis of the relationship between crude price differentials and three quality differentials, as well as transport costs and seasonal effects. In addition to the API (American Petroleum Institute) gravity number and the sulfur content of the crudes, which are the qualities generally included in existing analysis, the report presents the impact of acidity (measured by the Total Acid Number - TAN) on the price differential. This is because acidity has become increasingly important as the volume of high acid crudes, particularly from West Africa, has steadily increased in recent years.

This study sheds some light on the challenges facing policy makers in Ethiopia, but much remains to be better understood. Over the past three years, food price inflation in Ethiopia has been persistently high, and overall inflation has been in double. While the spike in 2002 can be broadly explained by the drought-induced output shock that year, over the period as a whole, food price - and in particular grain price - trends present a puzzle in several respects. This is a serious concern for policy-makers, not least because the poor spend most of their income on food, and are adversely affected by rising prices. Even in rural areas, it is estimated that about half the population are net buyers of food. The issue of food price inflation has attracted rising concern in the national media and among policy makers, academics and of course the public at large, as well as among development partners. The structure of this note is as: authors review the key features of Ethiopian grain markets, before laying out a basic methodological approach to analyze the drivers of inflation...

Recent volatility in international energy prices has revealed South Eastern Europe as one of the most vulnerable regions to such external shocks. Under the current global economic downturn, in addition, the region s energy-intensive industries are faced with the challenge of the weakening demand for their outputs. This paper casts light on the relationship between the price and the demand for energy. Based on firm level data, it is shown that the price elasticity of industrial energy demand is about -0.4 on average. There are a number of data issues to interpret the results correctly. But Albania and Macedonia are systematically found to have a relatively elastic demand for energy on the order of -0.7 to -0.8. In these countries, therefore, price adjustments would be one of the effective policy options to balance demand with supply during the period of energy crisis. In other countries, the demand response would be much weaker; pricing cannot be the only solution. Other policy measures, such as facilitation of firm energy efficiency and improvements in the quality of infrastructure services...

Myanmar is a low-income agrarian country with a high poverty rate. The livelihood of many poor people depends on the performance of agriculture, especially the rice sector. Rice accounts for 70 percent of Myanmar s total cultivated area and 30 percent of the value of its agricultural production. Increasing returns to rice production will be the key to increasing farm wages and incomes in the short to medium run. Higher rice production will also help maintain low food prices, improve food security, and reduce poverty, as an average household spends 61 percent of total household income on food, and rice is a major component of the food basket. Price fluctuations are a common feature of well-functioning agricultural markets. Price fluctuation should be expected in such markets, since output varies from period to period due to factors such as weather, pests and disease, and because demand and supply are inelastic in the short run. Moreover, some amount of seasonal and spatial price movements should be tolerated, since these usefully signal scarcity in the market and facilitate a supply response...

Income growth in emerging economies has often been cited as a key driver of the past decade’s com-modity price boom—the longest and broadest boom since World War II. This paper shows that income has a negative and highly significant effect on real food commodity prices, a finding that is consistent with Engel’s Law and Kindleberger’s thesis, the predecessors of the Prebisch-Singer hypothe-sis. The paper also shows that, in the long run, income influences real food prices mainly through the manufacturing price channel (the deflator), hence weakening the view that income growth exerts strong upward pressure on food prices. Other (short-term) drivers of food prices include energy costs, inventories, and monetary conditions.

This paper exploits unique features of a recently introduced tariff schedule for natural gas in Buenos Aires to estimate the short-run impact of price shocks on residential energy utilization. The schedule induces a nonlinear and non-monotonic relationship between households' accumulated consumption and unit prices, thus generating exogenous price variation, which is exploited in a regression-discontinuity design. The results reveal that a price increase causes a prompt and significant decline in gas consumption. They also indicate that consumers respond more to recent past bills than to expected prices, which argues against the assumption that consumers have perfect awareness of complex price schedules.

This paper assesses the impact of a change in the price of cashew received by exporters in general -- and by FUNPI, a fund to promote the industrialization of agricultural products, in particular -- on farmgate prices and poverty in Guinea-Bissau. The analysis builds a theoretical model of supply chains in export agriculture that includes exporters, traders, and farmers competing in a bilateral oligopoly fashion. The model is adapted to data from the country's cashew sector and a household survey. Given the market structure, a shock on export prices or the introduction of an export tax, such as the FUNPI contribution, has a strong effect on farmgate prices, as farmers absorb about 80 percent of the tax (while exporters take up 13 percent and traders absorb the remaining 7 percent). The effect is uneven across households, as poor rural households are more exposed to price volatility and most cashew farmers are poor. It is estimated that their income falls by 12 percent as a result of the FUNPI contribution. Complementary policies can overcome the effect of the FUNPI surcharge on farmgate prices by aiming for reductions in transport...

Executive Summary This paper will evaluate the costs and benefits of implementing a price support program for Myanmar’s rice sector. I begin with a review of the literature relevant to price support programs for staple crops. From the review, I will present a general framework for evaluating price support programs. This framework will then be applied to select countries in Southeast Asia to provide context for how these experiences might be applied in Myanmar. Next comes a quantitative analysis of a prospective price support program in Myanmar, complete with rough forecasts of government expenditures under each program. The paper concludes by recommending implementation strategies to minimize the costs and maximize the benefits from a price support program. Context: The Rice Industry in Myanmar Agriculture contributes to roughly 45% of Myanmar’s GDP and employs 66% of the labor force. Rice is cultivated on 18.9 million hectares and constitutes 33% of the total crop area sown (Wong 2013). The major production areas are the Ayeyarwady Delta, Bago in lower Myanmar, and Sagaing. Rice and the rice industry are critical to the livelihoods of the people of Myanmar. Roughly 66% of the labor force is employed in agriculture, and a large percentage of these farmers cultivate rice (CSO 2011). There are two main categories of rural farmers: farmers and landless agricultural laborers. In 2009...