Abstract
It is commonly felt that the liberalisation of commodity markets has increased the exposure ofcommodity producers to price volatility. Using a generalized autoregressive conditionalheteroskedasticity framework, we make a distinction between the predictable and unpredictablecomponents of volatility, the latter exposing producers to price risk. By using empirical estimatesof the coefficient of relative risk aversion drawn from the literature, we show that the welfare gainfrom eliminating this price risk for Indian coffee producers is on average 4.8 percent of theirrevenue from coffee sales, which for a poor producer may be more than a month’s income. This underlines the need for providing producers access to suitable price-risk management or hedgingmechanisms.
Original language | English |
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Pages (from-to) | 57-72 |
Number of pages | 16 |
Journal | Journal of Developing Areas |
Volume | 48 |
Issue number | 4 |
DOIs | |
Publication status | Published - 14 May 2014 |
Keywords
- India
- coffee producers
- price volatility
- risk aversion
- welfare loss
- GARCH
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Sushil Mohan
- School of Business and Law - Principal Lecturer
- Business and Economic Change Research Excellence Group
Person: Academic