Does It Pay to Stabilise the Price of Vegetables? An Empirical Evaluation of Agricultural Price Policies.

This paper evaluates the preference for stable vegetable prices in Israel by analysing two different approaches. The first determines the consumer's willingness-to-pay measure to achieve price stabilisation in terms of the concavity-convexity properties of the indirect utility function. By examining the demand function parameters, the risk premium to avoid price instability is assessed as a function of the price elasticity of demand, the share of the budget spent on the product, the coefficient of relative risk aversion, the income elasticity of demand and the coefficient of variation of the vegetable price. The second method is a classical simulation model of market demand and supply functions where price stabilisation policies are implemented and measured in a cost-benefit framework. In general, sensible risk averse consumers prefer unstable vegetable prices, although the economy benefits from the price stabilisation of most vegetables, when income transfers are allowed between consumers, producers and wholesalers.