Working Paper: CEPR ID: DP13169
Authors: Pramila Krishnan; Peng Zhang
Abstract: The study of consumption in poor households usually focuses on the costs of the consumptionbasket rather than its composition. In contrast, we investigate the variety inconsumption using data from rural Ethiopia. We examine the loss in variety in remotelocations, relying on a purpose-designed longitudinal survey over two years, where villagesdiffer only in distance to the market and are homogenous otherwise. In addition, we exploita change in policy which resulted in a crackdown on informal or unlicensed traders in thesecond year but which affected only the more remote set of villages and resulted in a fall inavailability in these villages. We examine the welfare impact of the crackdown on tradersby calculating the compensating and equivalent variation and find a fall in welfare between11% and 13% of incomes for households affected by the crackdown, mostly driven by theresultant fall in varieties available. The welfare costs of remoteness are driven by not justthe fall in consumption but also the fall in variety in consumption.
Keywords: variety; transport costs; domestic trade
JEL Codes: D12; D04; O12; O18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Remoteness from markets (R39) | Decrease in variety of manufactured goods (L69) |
| Crackdown on informal traders (J46) | Decline in availability of varieties in treated villages (Q16) |
| Remoteness from markets (R39) | Welfare loss due to decreased variety (D69) |
| Crackdown on informal traders (J46) | Welfare loss due to decreased variety (D69) |