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Welfare effects of changed prices The “Tortilla Crisis" revisited

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  • Rita Motzigkeit Gonzalez

Abstract

This study uses a comprehensive framework to quantify the welfare changes of rural and non-rural households in Mexico associated with the food price crisis of 2007. The total change in welfare is decomposed into ve contributors. I nd that income e ects, i.e. changes through pro ts and wages, negatively a ected welfare. Substitution e ects played an important role in maintaining welfare levels after a price shocks, households substantially substituted out of goods that showed a strong increase in their price. Though food price increases led to a signi cant welfare loss, part of it was compensated through the decrease of the price of other commodities such as health and personal care, transportation, and leisure. Hence, particularly in non-rural areas, the sole use of food commodities to analyze welfare changes leads to markedly di erent results than using the complete range of all goods consumed. Overall both poor households in rural as well as non-rural areas experienced a net welfare loss, but the effect was stronger for poor rural households thus among the poorest of the poor.

Suggested Citation

  • Rita Motzigkeit Gonzalez, 2016. "Welfare effects of changed prices The “Tortilla Crisis" revisited," Working Papers 167, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:167_motzigkeitgonzalez
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    File URL: http://www.bgpe.de/texte/DP/167_Motzigkeitgonzalez.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    welfare changes; prices; poverty;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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