Working Paper: CEPR ID: DP1447
Authors: Jaime de Melo; Marcelo Olarreaga; Wendy Takacs
Abstract: This paper uses a price-leadership model of the international vanilla market to study the welfare consequences of alternative pricing policies for Madagascar ? a country that controls domestic production through a single-channel marketing system and is the leader in the vanilla market. Econometric estimates of the model are used for simulations of welfare and revenue gains and losses and internal redistribution of income from alternative pricing policies. The results indicate that Madagascar could have gained between 0.9?2.6% of GDP per year on average over the period 1981?91 by following optimal pricing policies, and that producers were overtaxed suggesting that political economy considerations played a role in the pricing decisions.
Keywords: marketing boards; monopoly power; monopsony power; optimal pricing; income distribution
JEL Codes: D33; D43; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Optimal pricing policies (D40) | GDP gain (E20) |
| High official selling prices (P22) | Overtaxation of producers (H29) |
| Pricing policies (D49) | Welfare losses (D69) |
| Pricing strategies (D49) | Influenced by urban political elites (D72) |