Disaggregated welfare effects of agricultural price policies in urban Indonesia

Abstract

This paper presents a theoretically consistent methodology that could be used to measure changes in different income groups' welfare level caused by alternative price policies. The paper details the basic stages of the methodology: classification of households in income groups, estimation of demand systems for each income group, and measurement of welfare changes using compensating variation measures. The methodology was applied to data related to expenditure and socioeconomic characteristics of Indonesian Urban households. A simulation analysis measuring the welfare changes under different pricing scenarios showed that the welfare of the low-income households was affected most by increases in the prices of rice and fish.