Sensitivity of Welfare Effects Estimated by Equilibrium Displacement Model: A Productivity Growth for Semisubsistence Crops in Sub-Sahara African Market with High Market Margin
Authors: Hiroyuki Takeshima
Abstract: Conventionally used Equilibrium Displacement Model (CEDM) has various unrealistic assumptions, despite its common application to the ex-ante estimation of welfare effects from agricultural productivity growth. In particular CEDM assumes a) linear supply curve; b) productivity growth represented as parallel shift in supply curve; c) zero market margin. The application of CEDM may be questionable particularly for assessing the impact of productivity growth in semi-subsistence crops in poor countries, where distribution of benefits to the lower income population is as important as the size of total benefits. An alternative EDM is developed which replaces a) with constant elasticity form, b) with pivotal shift and drop restriction of c). A detailed theoretical discussion is provided on how unique characteristics of cassava production in rural Sub-Saharan Africa (SSA) allow approximation of its supply curve into constant elasticity form, and also why pivotal shift may be appropriate for cassava productivity growth in SSA given the characteristics of most dominant disease for cassava. Estimated welfare effects are then compared between CEDM and AEDM for the case of cassava in Benin. Results indicate that CEDM can provide significant bias in both total welfare gains and the pro-poor nature of such productivity growth.