THE ANDEAN PRICE BAND SYSTEM: EFFECTS ON PRICES, PROTECTION AND PRODUCER WELFARE

R

NPC =--D-

E × Pw

An estimated NPC > 1.0 implies that producers are protected; an NPC < 1.0 implies that
they are being taxed.

Welfare Effects

The methodology proposed by Newbery and Stiglitz (1981) and widely applied to the
analysis of price buffer schemes, is used here to evaluate the effects of the APBS on
producers welfare. Their approach, summarized in equation (4),
suggests that the total welfare effects (B) induced by a price stabilization scheme can be
divided into the transfer effects (first RHS term) and the benefits due to income risk
reduction (second RHS term). The transfer effects measure the distributional impact of
the price stabilization scheme; producers may gain or lose at the expense of consumers
and/or the government. The second term expresses the risk benefits, that is, the gains
derived from the reduction in the levels of risk attributable to the program. These benefits
represent the gains (or losses) resulting from the increased (decreased) efficiency which
which the economy operates as a result of the stabilization program.

The Newbury and Stiglitz approach is applied in comparing the welfare changes
from the pre-APBS period to the APBS period. However, in order to get more accurate
estimates of the effects of the APBS, two additional scenarios were formulated. The first,
the “Pure Andean Price Band System”, simulates the price bands for maize, rice and
sugar for the entire period 1990-1998, including the first five years in which national

<<   4   5   6   7   8   9   10   >>

More intriguing information