Decomposing Producer Price Risk: A New Policy Analysis Tool with an Application to Northern Kenyan Livestock Markets
Cornell University Dept. of Applied Economics & Management Working Paper
23 Pages Posted: 4 Nov 2002
Date Written: May 2002
Abstract
This paper introduces a simple method of price risk decomposition that determines the extent to which producer price risk is attributable to volatile inter-market margins, intra-day variation, intra-week (day of week) variation, or terminal market price variability. We apply the method to livestock markets in northern Kenya, a setting of dramatic price volatility where price stabilization is a live policy issue. In this particular application, we find that large, variable inter-market basis is the most important factor in explaining producer price risk in animals typically traded between markets. Local market conditions explain most price risk in other markets, in which traded animals rarely exit the region. Variability in terminal market prices accounts for relatively little price risk faced by pastoralists in the dry lands of northern Kenya although this is the focus of most present policy prescriptions under discussion.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Stochastic Wealth Dynamics and Risk Management Among a Poor Population
By Travis J. Lybbert, Christopher B. Barrett, ...
-
Social Identity and Manipulative Interhousehold Transfers Among East African Pastoralists
-
Not Necessarily in the Same Boat: Heterogeneous Risk Assessment Among East African Pastoralists
By Kevin Smith, Christopher B. Barrett, ...
-
Household Income Dynamics in Rural China
By Martin Ravallion and Jyotsna Jalan
-
Heterogeneous Wealth Dynamics: On the Roles of Risk and Ability
-
Bayesian Herders: Asymmetric Updating of Rainfall Beliefs in Response to External Forecasts
By Travis J. Lybbert, Christopher B. Barrett, ...
-
Bayesian Herders: Optimistic Updating of Rainfall Beliefs in Response to External Forecasts
By Travis J. Lybbert, Christopher B. Barrett, ...
-
Occupational Choice and Dynamic Incentives
By Maitreesh Ghatak, Massimo Morelli, ...