Stabilization and redistribution of coffee revenues: A political economy model of commodity marketing boards

JOURNALOF

Development Journal

of Development

Economics

44 (1994) 351-380

ECONOMICS

Stabilization and redistribution of coffee revenues: A political economy model of commodity marketing boards Mauricio Fedesarrollo,

Received

Apartado

GArdenas* A&o

75074, Bogotd,

May 1992, final version

received

Colomhia

April 1993

Abstract Domestic prices of export crops are important macroeconomic variables in primaryexporting countries. Not only are they key determinants of the business cycle, but also play a pivotal role in the resolution of distributive conflicts. Using a model where producers ‘delegate’ pricing decisions in a fully optimizing environment, this paper explores the relationship between the redistribution and stabilization functions of marketing boards. The results of the model, as well as the empirical evidence, suggest that different institutional arrangements are helpful in explaining differences in macroeconomic performance across countries. The analysis is carried out for coffee in Colombia, Costa Rica, C6te d’Ivoire and Kenya. Key

words:

Marketing

JEL c/ass@~~iont

boards;

Coffee; Stabilization;

Redistribution

013; 017; H2

1. Introduction

Marketing boards are commonplace institutions in developing countries. With few exceptions, primary-exporting countries have developed marketing and pricing systems for export crops that include a ‘Board’ (as in anglophone East and West Africa) or a ‘C&se (as in francophone West Africa) endowed with monopsony power in the purchase of the relevant product. *This paper is a revised version of chapter 3 of my dissertation (CBrdenas, 1991). I am grateful to Albert Fishlow and Torsten Persson for their very helpful advise. I would like to thank, without implicating, Pranab Bardhan, Jere R. Behrman, Jeffrey Frankel, Gary McMahon, Maurice Obstfeld. Jo&z Antonio Ocampo, Panos Varangis, Brian Wright, and two referees. The participants of several seminars at UC Berkeley, Fedesarrollo, Banco de la RepCblica and the annual meeting of the Cedes-Cieplan-Fedesarrollo-PUC network also made useful suggestions. 0304-3878/94/$07.00 Q 1994 Elsevier Science B.V. All rights reserved SSDI 0304-3878(94)00018-8

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When the country has some market power in the determination of world prices, the board can be used to regulate exports and, hence, control the world price. In this case, the institution is best regarded as a way of imposing an optimal tax on exports that allows the country to achieve the first-best outcome. Individual producers are unable to adequately internalize the effects of their actions on world prices. Marketing boards also have important functions in cases where countries act as price-takers in the world market. Historically, national governments and ex-colonial powers (typically France and England in relation to their African colonies’) have justified the existence of this institution on the grounds of stabilization of producers’ incomes.2 The argument hinges on the instability of world prices and (often implicitly) on the inadequate functioning of local rural credit markets (as well as the lack of access of producers to futures markets). If local producers do not have access to instruments for consumption smoothing, the first-best outcome, it is then a second-best solution to create an institution that is able to save (dis-save) during periods of high (low) world prices, allowing each individual producer to face a stable income.3 However, marketing boards have often become instruments of taxation in spite of the stated unwillingness to underpay producers. Typically, underpayment occurs in cases where the institution is under the control of the central government. In this case, there is an incentive for politicians and officials with different preferences than those of the farmers to use the board for redistribution purposes (so producers may benefit from dismantling of the institution even if it represents a stable remuneration). This has been pervasive in African countries where British and French officials were replaced (after independence) by urban political elites which derive financial and political power from management of the institution. At the other extreme, which is the exception rather than the norm, ‘During World War II, marketing boards were established in former British West African colonies for cocoa, palm oil, groundnuts, and cotton (See Bauer, 1987; Lele and Christiansen, 1989). ‘The concept of stabilization is ambiguous and vague in most of the literature. It can refer to money or real prices and incomes, or it can take the form of a escape-clause arrangement where intervention is triggered when real (nominal) prices or incomes reach a maximum or minimum level. Also, as argued in Bauer (1987) a precise concept of stabilization needs to make clear the period over which surpluses and deficits are to be balanced. 3 In an early application of his permanent income hypothesis, which assumes perfect capital markets, Friedman (1954) argued that compulsory smoothing is undesirable. More recently, Newbery and Stiglitz (1981) have drawn attention on the tension between the short-run and the long-run effects of stabilization. Price stabilization may distort production decisions so that in the long run income variability increases. Much of the emphasis is now placed on the efficiency mainly though better financial gains that arise from correction of the initial distortion, intermediation, and access to future commodities markets (See Behrman, 1987).

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marketing boards in countries where producers exercise direct control over the institution, producers’ prices are higher (compared with the case where producers do not run the institution) and more stable (compared to countries where the institution does not exist). Also, the limited taxation of coffee typical of this scheme forces the government to diversify the tax base. Marketing boards are fundamental for the resolution of (inter- and intrasectorial) distributive conflicts. Also, the ability of the Board to stabilize producers’ prices in countries where one or two crops account for a large percentage of exports and GDP, affects the amplitude of the business cycle.4 Redistribution of coffee revenue to agents unable to save (or borrow) leads to cyclical fluctuations even if producers’ prices are stabilized. The central hypothesis of this paper is that institutional differences are helpful in explaining different patterns in the behavior of domestic prices. Focusing on the experience of four coffee-producing countries (Colombia, C6te d’Ivoire, Costa Rica, and Kenya), the paper covers a wide range of arrangements: Colombia has a stabilization fund which traditionally has been under the sphere of influence of coffee producers; C6te d’Ivoire has a ‘caisse de stabilisation’ directly controlled by the central government. In contrast, stabilization is not pursued in Costa Rica and Kenya. In particular, the paper argues that price stabilization has been successful in Colombia given the checks on the redistribution of coffee revenue. As a result, the cyclical components of GDP and private consumption have been more stable than in countries like Costa Rica and Kenya where producers bear entirely the fluctuations in world coffee prices.’ C6te d’Ivoire is an interesting example where, in spite of the greater stability of coffee prices, substantial redistribution implies a procyclical pattern of fiscal expenditures. In this case, the stabilization objective is completely undermined from a macroeconomic point of view.” The paper is divided into six sections. Section 2 discusses the general approach taken here in the spirit of the New Political Economy literature. Section 3 describes the different institutional arrangements in each one of the four countries. Section 4 formalizes the idea that delegation of pricing decisions to a council of coffee producers may be the first-best policy when world prices are volatile and individual agents do not have access to a consumption smoothing technology. Section 5 presents the empirical evi4 Macroeconomic stability, in turn, is crucial for economic growth and social progress. See Urrutia and Grdenas (1992) for a formal test of this hypothesis using data from the same group of countries studied here. ’ In a series of papers about Kenya, Bevan et al. (1987, 1989, 1990) have argued that, in spite of farmer’s ability to save, the fiscal sector response to the coffee boom resulted in large macroeconomic fluctuations during the late 1970s. ‘Cardenas (1991, Ch. 2) provides a complete account of the time series properties of GDP, consumption, investment and government expenditures in the countries under analysis.

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dence and tests some of the positive ends with a brief section of conclusions.

predictions

of the model.

The paper

2. A conceptual note on ‘endogenous’ state policies The approach taken throughout this paper follows the new developments in the theory of economic policy in the sense that policymakers have wellspecified objectives and incentive constraints.’ From a positive viewpoint, the goal is to explain which equilibrium policies follow from different institutions (which entail different incentives). The normative questions relate to the ranking of institutions according to their outcomes. In much of this recent literature, including its empirical applications, democratic elections and its corollaries of electoral policy cycles and political instability, has been the political institution which has received most attention.’ Although this might be appropriate for the case of industrial countries, in developing countries the emphasis on direct-vote models is partially irrelevant. In fact, often democratic elections do not take place (as exemplified by Cote d’Ivoire and Kenya in the present context), and even where they take place, it is between broad ‘catch-all’ parties so none of the key distributional questions is decided at the electoral level (also political participation is minimal, e.g. Colombia). As a result, some of the applications of this new approach to the context of developing countries (e.g. Cukierman et al., 1989; Edwards and Tabellini, 1990; Roubini, 1990) which try to explain fiscal (and monetary) behavior in LDCs on the basis of the effects of political instability on the alternations of political parties in power, can be misleading. Rather, it is the political control of a different institution (e.g. the marketing board) that is decisive for the fiscal policy outcome. Otherwise, it will be hard to explain why Colombia, a country with two alternating political parties and a strong distributional conflict has much smaller fiscal deficits than say Cote d’Ivoire and Kenya, where there has been no political alternation since independence. Costa Rica, also a two-party democracy, has a less skewed income distribution than Colombia but yet seems to have larger deficits. Lastly, the approach taken here is also different from the more traditional analysis of marketing boards (e.g. Bauer and Yamey, 1968). Here, farmers may be organized enough to have some control over the institution. In addition, in the model presented in Section 4, pricing policies are not

’ Persson and Tabellini (1990) provide a comprehensive survey of this literature. ’ An exception to the rule is Alesina et al. (1990), who provide a rich and detailed different political institutions in the US.

discussion

of

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‘exogenous’ in the sense that they take into account the political strength of the different groups as well as the farmers’ supply response to those policies.

3. Institutional

arrangements

3.1. Colombia

Apart from Brazil, Colombia is perhaps the only country with some degree of influence on world coffee prices. On the institutional front the main characteristic of the Colombian case is the direct influence of producers on coffee policy. The principal actor is the National Federation of Coffee Growers’, that administers the National Coffee Fund, a public account created in 1940 for the purchase of excess production over the quota agreed between the U.S. and the main Latin American producers. The Fund was not conceived in its origin as a price stabilization device. Quite the contrary, it was a necessary tool for the effectiveness of the cartel with Brazil, which allowed the country to exercise some market power. Producers’ price stabilization became a function of the Fund only in 1958, after the collapse in world prices. Governments have increased their degree of influence on the management of the Fund. Since 1978 government officials (led by the Minister of Finance who has veto power over most decisions) and producers have equal representation. Ties are split by the President. Negotiations between the two groups are centered around the price paid to domestic producers and the use (financing) of the Fund’s surplus (deficit). Transfers to the central government are not automatic. They are considered capital transactions, and are generally opposed by the Federation.

3.2. C6te d’/voirr The ‘C&se de Stuhilisution des Cows’ was established in 1955 and incorporated (after independence in 1960) as a parastatal under the complete control of the central government. The Caisse determines payments for all the stages along the marketing chain, including the producers’ remuneration. Producers’ prices are meant to ‘reflect production cost’ and provide ‘equal remuneration for all crops’ (Akiyama, 1988). Consequently, the ratio of

‘Analysts agree that the Federation is not just a producers’ association. For instance, Urrutia (1983) argues that the Federation forms a parallel state with its own sources of legitimacy since producers’ representatives at all levels are elected by direct vote and for relatively long periods of time (so they deal both with booms and busts and embody the will to stabilize).

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producers’ prices for both coffee and cocoa has remained constant since the 1976177 season, in spite of divergent world prices. On paper, any surplus obtained by the C&se at the end of a crop year should be allocated to the Price Stabilization Reserve, expenditures for rural infrastructure, and agricultural credit schemes. In practice, producers in Cote d’Ivoire have been heavily taxed, so that the Caisse has implied a low (but, nonetheless, stable) remuneration.” As is documented in Ridler (1988), the Caisse provides between one-half and two-thirds of public sector investment in Cote d’Ivoire. The return of those investments was at best insufficient (or nonexistent at worse) to support a stable price after the collapse in the world market during the 1980’s. 3.3. Costa Rica In spite of the extensive legislation regulating all marketing stages, coffee farmers in Costa Rica bear entirely the fluctuations in world prices. The system is overseen by the Costa Rican coffee institute which, apart from R & D activities, determines a minimum advance (partial) payment by millers to producers. Producers receive full payment for their sales only at the end of the crop year, when mills - who are allowed to sell processed coffee directly or through (10) private exporters - must meet the minimum liquidation price, set by the institute on an individual basis according to total sales and processing costs (including a 9% return) of each mill. Farmers face all price uncertainty. Coffee taxation is an important source of revenue for the central government [8-12% of total revenue in the 1980s Jaramillo (1990)]. The progressiveness in export and production taxes is often confused with price stabilization (e.g. de Graaff, 1986). While the mechanism assures that windfall profits are (partially) transferred to the central government, it has no provisions for isolating domestic producers from a major collapse in world prices”. 3.4. Kenya In essence,

the pricing

system

in Kenya

for coffee and tea is that of a free

"According to de Graaff (1986) producers received on average over the period 197551982 about 40% of the unit value of exports. Balassa (1988) reports a ratio of 29.3% for the booming years of 197678, while according to Varangis et al. (1990) producers received during the 1980s 38% of the world price (36% in the 1970s). These ratios are among the lowest when compared to other countries. ” According to de GraaB (1986), over the period 1977/78-1981/82 producers received 69% of total sales (exports plus domestic consumption, which amounts to 13% of production); 17% went to the government (through taxes); and 9.5% to mills. Jaramillo (1990) estimates an average tax on producers (including the domestic consumption subsidy) of 18% for the period 1975-1988.

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market. The Coffee Board (created in 1933) performs liquoring tests and organizes weekly auctions to private licensed buyers who are the solely responsible for export sales. A two-tier payment system is employed in order for farmers to receive a price which is linked to both world prices and average quality. The first instalment, which is lower than the average FOB price expected for that year, is paid at the collection points. As in Costa Rica, when a crop year is over, the Board calculates the second payment depending on the average auction price (i.e. quality) realized by each processing station (there are no payment differentials among farmers at the same mill). Government intervention is reduced to a minimum, and taxation of the coffee sector is small relative to other producing countries.” In the period 1963-73 an ad-valorem 5% tax was imposed, replaced in 1977 with a progressive structure (0_25’j/) related to the prices realized at the auctions. However, this export tax reduces domestic prices only slightly and has no stabilizing effects. In fact, Kenyan farmers received on average as much as 90% of the world price during the 1970s and 85% in the 1980s (Varangis et al., 1990).

4. Analytical

framework

This section presents a model which captures the interaction between the income distribution and consumption smoothing objectives of marketing boards. Moreover, the model emphasizes the efficiency and equity implications of some of the key differences among the institutional arrangements discussed in the previous section.13 In the model, a representative coffee producer maximizes a two-period time separable utility function and is given an endowment of one unit of coffee per period. The consumption good is available from the rest of the world and can be obtained by trading coffee. Trading takes place, however, at random prices which are exogenous to the coffee producing country given its small size. For identical reasons, world supply of the consumption good is infinitely elastic at those prices. On average, world prices are equal to unity, so that the representative coffee producer gets (on average) one unit of the consumption good. Moreover, since there is some evidence indicating that I2 Bates (1988, 1989) finds the explanation for this in the politics of the rural (as opposed to urban in most other African countries) nationalistic rebellion originating mostly in the area of smallholder production. A distinctive feature of politics in post-independence Kenya is the emphasis on rural development. I3 For a discussion of similar issues from an optimal taxation point of view, and with less emphasis on the role of institutions. see Newbery and Stiglitz (1981) Newbery (1987 and 1990) and Sah and Stiglitz (1987).

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real coffee prices are trend-stationary, the model assumes that a period of high prices (1 +c) is necessarily followed by a period of low prices (1 -t).14 Because of the duality between the benefits of intertemporal consumption smoothing and those arising from risk insurance (both are based on the concavity of the utility function), the model can be interpreted as measuring the value of marketing boards either when credit markets are not available (so that consumption smoothing is not feasible in the decentralized equilibrium) or when futures markets are nonexistent (so that individual producers do not have access to a risk insurance device). In the benchmark case, useful for welfare comparisons, a representative producer solves: maxW=

log(c,)+fi.log(c,),

(1)

s.t. c,+s,=l+t, c,=s,R+l-L, R>l,

IcI
(2)

where C, is consumption in period t, and s1 is saving (borrowing) in period 1. As usual, R represents the gross interest rate, which is exogenously given, and /3>0 is the discount factor. Solving for the optimal levels of consumpgives the first-best tion gives (replacing these values in the utility function level of welfare): c; =

’ [(1+~)+(1-0R~‘], 1 +p

(3)

(4) When producers are unable to save or borrow, consumption in each period equals the world price. As is well known, the concavity of the utility function makes smoothing to be superior for any parameter values. Furthermore, the gains from smoothing are increasing in the volatility of prices (0 and the interest factor, provided that the discount factor (8) is not too small. Of course, the first-best allocation is recoverable if producers create a

I4 Using World Bank data for the period 190(>-1988, and in contrast to Deaton and Laroque (1991), one can reject the unit root hypothesis for world coflee prices in a model that includes a (significant) time dummy during the years of enforcement of the International Coffee Agreement. As mentioned in Campbell and Perron (1991), misspecitication of the deterministic trend can cause non-rejection of the unit root hypothesis.

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‘Board’ embodying the same preferences of the representative agent but able to use credit markets at a given interest rate. The Board receives all the proceeds from sales and specifies the remuneration for each producer in both periods. As in the central planner’s problem, farmers’ consumption in both periods corresponds to the decentralized allocation under complete markets. 4.1. Delegation

to an agent with dfferent

prqfermces

As shown in Section 3, in practice other sectors of the society are involved in the control of marketing boards. For simplicity, assume that there is another group ‘u’ (e.g. the urban sector) different than coffee producers ‘c’. Now the goal of the board is to maximize the Pigovian welfare function: maxI

= f$WC + W”,

where w’=

log(c’;) +/I’ log(&)

(5)

and (p is the relative weight assigned to coffee producers.15 technology, the If neither group has access to a consumption smoothing board collects all the export revenue in both periods and sets the prices (p) paid to producers and the transfer to urban agents (K). In other words, it maximizes (5) subject to c_

( f - PC

c;=g,,

(l+t)+(l

-OR-‘=p,+g,

The solution to the optimization consumption is smoothed out for consumption are given by:

+(pz+g,)R-‘.

(6)

problem yields an allocation where both groups of agents. The levels of

Notice that coffee producers get a fraction c#/(I otherwise consume if there had been no distributive gets the remaining fraction l/( 1-t 4) (which can farmers pay for consumption smoothing). Also,

+$) of what they would conflict. The urban agent be thought as the price the greater the relative

Is In the model these weights are exogenously given. See Roe and Yeldan (1988) for a model in which the two groups devote labor to lobbying activities that affect the weights on the government’s welfare function.

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weight of coffee producers on the board’s preferences, the smaller the size of the transfer and, hence, the larger the price paid to producers. In the limit, as the government becomes indifferent about the urban agent, the allocation approaches the first-best for coffee producers. That is, agL/&j < 0,

(7p;/&j > 0,

lim pi = cp, 4-7

lim g: =O. 4-x

(9)

In turn, the value of 4 for which coffee producers are indifferent compulsory smoothing with redistribution, WC, and no smoothing redistribution), W’ is given by

(1

+/j-l

I( p

1

+rtdR-’ l~)(l+Rj~)n]l’~‘+o’-*

Clearly, coffee producers are willing to sacrifice influence if price fluctuations become more acute (i.e. as t increases).

4.2. Supply

between (without

on policy making

response to coffee taxation

The model has assumed so far that production decisions are unaffected by redistribution. In reality, however, it is reasonable to argue that systematic taxation of coffee producers would result in a reduction of the tax base. The Board, if aware of this situation, would correctly impose limits to redistribution based on efftciency considerations, in addition to the equity criteria, central to the argument of the previous section. In this sense, the Board’s pricing decisions are analogous to the solution of an optimal taxation problem. When supply responses are ignored (or underestimated), the result is overtaxation (too low prices) which erodes the tax base. That is, the same amount of redistribution can take place with different implicit taxes on coffee producers. A Laffer curve arises, and the Board should optimally choose that rate which leaves coffee producers with the highest income. For simplicity, the problem can be thought of as a situation in which the representative producer has the option of smuggling out of (into) the country a fraction m of her unit endowment if world coffee prices are higher (lower) than domestic prices. However, potential seizure at the border makes the marginal cost of smuggling is smuggling activities costly. Moreover, assumed to be increasing in the quantities of illegal shipments. Assume that the individual producer solves a two-period time separable utility maximization given by max W= U(c,) +/~U(C,),

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s.t. Cl

=(l +t)m,

1’2 =

+p,(l

-mr)-K(m,),

( 1 - c)m2 + pz( 1 - m2)- K(m,),

where

K,$O

as

m$O,

K,,

> 0.

(11)

As before, the agent takes domestic and world prices as given and is unable to use credit markets. Consumption in each period is equal to the world price times the quantity smuggled (m’), plus the domestic price times the quantity sold to the Board (1 -m’), minus the cost of smuggling expressed in units of the consumption good. The optimal levels of smuggling in both periods are given by the first-order conditions, U;(l

+c-p,-K,(m,))=O,

fiL’,~(1-c-~z-K,(m2))=0.

(12)

Provided that the usual Inada conditions the following smuggling functions:

are satistied,

the solution

implies

~~=l+c--p,=K,(m,)~m,=K,‘(r,)=M(s,), 52 = 1 --t -pz = K,(m+m, where for convenience

4.3.

= K, ‘(z2)= M(T~),

the tax rates z1 and z2 have been explicitly

(13) defined.

The hoard’s problem W”,

maxW=4WC+ where

WC= U(c,) + BUC,),

W” = Ukl) + /)'mz)? s-t. r,=z,M(~,)+(l+(-z,)-K(M(r,)), c2 = z,M(z,)

+ (1 -t

z,(l -h,f(r,))+R-‘T,(l

- s2) - K( M(T,)), -M(T~))=~~

+R-‘g,.

(14)

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Notice that the first two constraints simply rewrite (in terms of taxes rather than prices) those of the individual producer. Also, the quantity of smuggling is now replaced with its explicit functional form as derived from the individual agent optimization problem. Lastly, the intertemporal budget constraint for the Board states that in present discounted value tax revenues Conveniently, tax have to be equal to expenditures (i.e. redistribution). revenues are expressed as the product of the tax rate times the amount of coffee bought by the Board (i.e. the tax base). The solution to this problem involves finding the optimal tax rates (T,) and transfers to urban agents (g,) in both periodst6. For the ease of interpretation it is useful to define p, the elasticity of coffee supply sold to the Board [ 1 -M(z)] with respect to coffee taxation (r). That is,

(15) so that the elasticity becomes smaller (in absolute value) as the convexity of the cost function increases. Using these expressions, the first-order conditions for the Board’s problem are given by

(16)

(17)

(18) The left-hand side of (16) is the marginal rate of substitution in consumption (across time) for coffee producers. Assuming J= R = 1, this condition implies that the tax rates should be such that the marginal utility of consumption over the elasticity of tax revenue with respect to the tax rate should be equal in both periods. ” That is, the marginal rate of substitution “The envelope theorem provides a helpful shortcut in deriving the first-order conditions. In particular, observe that smuggling is chosen optimally by private agents, so that an increase in the tax rate reduces consumption only by an amount equal to the fraction of output sold to the Board (i.e. the income effect of additional taxation) ‘= (:7;

-[l-M(7;)]~[~<,(m,)-r,]M,(T,)=

“To see this observe that respect to the tax rate (7,).

I +p,

-[I

is the elasticity

(F.1)

-M(T,)]. of tax revenue

in period

t [r,( I ~ M(r,)J with

should be equal to the ratio of these elasticities (which won’t necessarily be equal to unity as in the standard consumption smoothing problem). This is just an application of the well-known Ramsey rule: Under optimal taxation, the distortion caused by the last unit of revenue has to be equated across tax bases (which means that the more inelastic tax base is taxed more heavily). The left-hand side of (17) is the ratio between the marginal utility of consumption for coffee producers in period t weighted by the distributional parameter 4, and the marginal utility of consumption for urban agents in period t (in this case the distributional weight of urban agents is unity by construction). Eq. (17) captures the trade-off between economic efficiency and income redistribution that the Board faces. In the case where there is no supply response to taxation, as in the previous section, redistribution takes place up to the point that equalizes the marginal utility in consumption of each group (weighted by the relevant distributional parameter). With a supply response the extent of redistribution is reduced. One way of viewing this point is to think of the relative weight assigned to the recipients of tax revenue as dropping from unity to 1 +pr (recall that pc, is negative). In the limiting case where the supply elasticity is equal to - 1, no redistribution takes place. Notice that the extent of redistribution depends on the convexity of the cost (of smuggling) function (which ultimately determines the supply elasticity). The greater those costs, the more inelastic is the tax base, and the greater the scope for redistribution.18 Interestingly, pricing policies of neighboring countries (when borders are easy to cross) can be determinant for the elasticity of the tax base. When (coffee) taxation is less pervasive in a nearby country, then the optimal degree of redistribution at home may be severely limited. Underestimation of the supply response (or overestimation of the smuggling costs) can result in an inefftcient redistribution which erodes completely the tax base. Finally, Eq. (18) states the usual Euler condition for the recipients of government transfers. When Jj= R = 1, transfers should be equal in both periods (i.e. g,=gz), so urban agents face a stable level of consumption. 5. Empirical results For the relationship

purposes between

of the discussion here, it is convenient world and domestic prices as

to state

the

(19) “These results generalize to the case where production is a linear function of labor (or effort). The formulation in this case involves including the disutility of labor in the welfare function which, naturally, gives more complicated expressions. The basic idea is, however. the same as in the present case except that the central role given to the convexities of the (smuggling) cost function is replaced by the convexity of the disutility of labor.

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where PC is the producers’ price in nominal domestic currency, P*’ is the nominal world price expressed in dollars, E is the nominal exchange rate ($ per US$), and a is the share of world prices paid to domestic producers. One can think of c1 as (one minus) an ad-valorem export tax (the discussion generalizes to any form of taxation) or as the exchange rate differential. Dividing through by P, the domestic country’s CPI, and multiplying and dividing by P* the US CPI, Eq. (19) becomes (after differentiating) p=jj*c+B+,~,

G-9)

where a circumflex denotes percentage rate of change and lower case letters denote real magnitudes. Therefore, it is possible to express the growth in domestic real prices as the sum of the growth in world real prices plus the rate of real depreciation of the domestic currency, plus the percentage change in the share received by producers. Different situations can be characterized using this accounting identity. In the extreme case where PPP holds (i.e. e is constant), there are no dual exchange rates and the ad-valorem tax is proportional (i.e. c( is constant), fluctuations in domestic and world real coffee prices are identical (in percentage terms). When the real exchange rate (RER) is not constant, and c( is not used for stabilization purposes, it is possible to isolate domestic (coffee) prices from changes in world prices by inducing real appreciations (depreciations) of the domestic currency when world real prices are higher (lower) than the normal level.” Alternatively, a progressive tax code is required in a regime where the advalorem tax is used as the stabilization device (so that z and pc move in opposite directions). If coffee pricing policy is delegated to an agent with similar preferences as coffee producers, the tax rate is low and, importantly, becomes negative for a sufficiently large drop in world prices (i.e. r becomes greater than 1). When taxes are decided by an agent with a strong distributive interest, the tax rate is likely to be high. In this case it is possible to perform a complete isolation (at a low domestic price level) by changing the (positive) tax rate but without incurring in subsidies. 5.1. The data Fig. 1 shows the real coffee prices paid to producers in the four countries under consideration, Interestingly, Cote d’Ivoire (followed by Colombia) stand out as the countries with the smoothest prices as measured by the variance of log price (which essentially is the CV squared). Fig. 2 displays I9 When a dual exchange rate system is adopted it is possible to avoid some of the negative effects of high variability in the RER. In particular, the exchange rate applicable to coffee exports can depreciate (appreciate) during busts (booms).

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365

250

200 I' "

I

::

‘,

150

8

Fig. 1. Real coffee prices paid to producers;

nominal

prices deflated

by CPI (IMF).

domestic prices expressed in dollars using the nominal exchange rate and allows a straightforward ranking of coffee taxation. Redistribution of coffee revenue is lowest in Kenya, followed by Costa Rica. Colombia, which has more taxation than these two countries but less than Cbte d’Ivoire, seems to have paid its coffee growers a constant amount in nominal dollars, with a permanent increase after 1977. Production data from FAO is shown in Fig. 3. Interestingly, the trend rate of growth has been faster in Kenya and Costa Rica (4.37% and 3.57x, respectively), intermediate for Colombia (2.02%), and not statistically different from zero for Cote d’Ivoire.20 Table 1 presents the correlation coefficients and the variance-covariance matrix for all the components of Eq. (19) expressed in logs. Interestingly, and as mentioned above, the variance in domestic prices in Costa Rica and Kenya is much higher (7.2 and 5.6 times, respectively, that of C6te d’Ivoire). In Colombia, producers’ prices vary 2.8 times as much as in CGte d’Ivoire. Consequently, the correlation coefficient between domestic and world (real) coffee prices is much higher in Kenya (0.88) than in Gte d’Ivoire where it is remarkably small (0.37). Colombia and Costa Rica stand in-between, with a coefficient of around 0.64 in both cases. LOAs derived error.

from a log-linear

trend

regression

corrected

for first-order

serial correlation

of the

366

M. Chdenus

200

i Journal of Devdopmm(

44 (1994) 351-380

I

1

I 150

Economics

,

1

Fig. 2. Nominal

I

,.

coffee prices paid to producers;

in US cents/lb.

The RER and world coffee prices move in opposite directions in Colombia and Cote d’Ivoire, so that part of producers’ price stabilization is done via the RER. Surprisingly enough, the correlation between these two variables is positive (but also low) in Costa Rica and Kenya. In these countries, high world coffee prices are associated (on average) with real depreciations, so that the exchange rate, if anything, induces more variability in domestic prices. Nonetheless, in all cases, the variance in the RER is much smaller than that of world coffee prices. Finally, taxation of coffee producers increases with world coffee prices. Here, again, the ranking of countries is straightforward. In Cbte d’lvoire, the correlation between the share received by farmers and the world price is close to - 1, while being -0.75 for Colombia. That is, changes in taxation tend to isolate domestic prices from world price fluctuations. These coefficients are smaller for the other two countries. However, some caution in the interpretation of these results is necessary given the (residual) nature of the variable. When an identical exercise is carried out in terms of first differences of the variables (as in Eq. (20)) the results (not reported) are similar to those of Table 1. An increase in the rate of growth of (real) world prices is associated in Colombia and Cote d’Ivoire with a percentage increase in taxation to producers and a decrease in the rate of real depreciation. In Costa Rica, changes in taxation do not seem to play a major role, although changes in

M. Cbrdcnas ! Journal qf Development

Colombia

Costa

Rica

Fig. 3. Coffee production;

Economics

”

Coie

d’lvo~re

metric

361

44 11994) 351-380

_:

Kenya

I

tons

the RER allow domestic prices to be less correlated with world prices than in Kenya. In fact, in this last case, neither taxation nor the exchange rate have a stabilizing function. Indeed, the exchange rate moves in the opposite direction. Table 2 takes a different approach by regressing the domestic coffee price against real world prices and the RER (all variables in logs of the 1985 index). Table 3 replicates the exercise for the first differences of the variables. However, as shown in previous theoretical and empirical work (e.g. Behrmann et al. 1989) the RER may depend on the terms of trade (i.e. world coffee prices) and domestic coffee prices (which in turn affect inflation and the business cycle). Failure to acknowledge potential endogeneity may result in inconsistent estimates of the parameters. Hausman exogeneity tests were carried out on both equations. The instrumental variables chosen included real world coffee prices, long term real capital flows and the rate of nominal devaluation.21 In the equation in levels RER( - 1) was also used as an instrument after checking that the errors ‘I This choice of instruments is based on Edwards (1989) and Obstfeld (1986). devaluations may have an effect on domestic prices through the RER but not on long-term capital flows are not used for price stabilization, one can argue that necessary condition for consistency of being independent of the residual in estimated.

Since nominal their own, and they satisfy the the regressions

1

in logs; using World

1 0.647012 -0.20359 0.359500

I 0.366539 0.693063 -0.33048

Cote d’lvoire Domestic coffee prices World coffee prices Real exchange rate Share received by producers

Riru

I 0.64838 0.346663 -0.21632

Domestic coffee prices

Correlation

prices”

1 -0.22371 -0.97231

1 0.149090 -0.41694

1 -0.19823 -0.74737

World coffee prices

matrix

Bank domestic

Domestic coffee prices World coffee prices Real exchange rate Share received by producers

Costa

Domestic coffee prices World coffee prices Real exchange rate Share received by producers

Colombia

All variables

Table

I 0.123305

1 -0.73244

I -0.0578

Real exchn. rate

I

1

I

Share received by prod.

0.014383 0.014795 0.010377 -0.01079

0.103567 0.070784 0.01023 0.04301

0.0400 1 0.03844 0.009627 ~0.00806

Domestic coffee prices

0.019273 -0.00149

Real exchn. rate

matrix

0.113274 -0.0094 -0.08908

0.015586 0.004190

0.115564 0.00791 I 0.024364 -0.05269 -0.04250

0.08786 -0.00816 -0.04126

World coffee prices

Varianceecovariance

0.074101

0.138202

0.034693

1

by prod.

z

5

$

$. 8

5 9

b 2 $ Share received

intervals 0.025 0.054 0.012 0.022

on the variances: Colombia:

Domestic coffee prices World coffee prices Real exchange rate Share received by producers

Confidence 0.075 0.165 0.036 0.065

Costa 0.060 0.067 0.014 0.080

Rica: 0.221 0.247 0.052 0.295 Cote d’lvoire: 0.028 0.009 0.069 0.219 0.030 0.010 0.045 0.143

Kenya: 0.048 0.054 0.007 0.026

0.166 0.186 0.023 0.089

_

1 Domestic coffee prices 0.081087 0.883058 1 World coffee prices 0.091215 0.075945 1 0.097985 0.284821 Real exchange rate 0.009077 0.011136 0.002944 -0.7818 1 Share received by producers 0.036874 -0.38514 0.043814 -0.01727 0.002198 -0.02435 ____ ~ ‘Sample periods: Colombia (1961-1988); Costa Rica (196881988); Cote d’Ivoire (1963-1988); Kenya (19661988). Domestic coffee prices are nominal prices from the World Bank deflated by the corresponding CPI. World coffee prices are New York prices of Colombian coffee (Colombian Milds) for Colombia, Costa Rica, and Kenya; Uganda coffee (Robustas) for Cote d’Ivoire. Deflator: industrial countries CPI (IMF). Real exchange rates are multilateral trade weighted. Share received by producers is derived as a residual (see text).

Kenya

60.7401 17.8292

1.8185 0.699 I 22

F-statistic Log of likld fctn

Durbin-Watson stat R-squared original data Number of observations

1.2761 3.1556**

0.5404 0.4920

rate

0.5066 3.9749**

- 3.6503 ~ 1.6907*

FAO (196c-88)

0.4337 0.3741 16.3097 I .8292 2.4969 0.5603 22

13.9311 23.5508 1.9812 0.7443 21

1.8377 I .4809

I .0279 2.9755** 0.5812 0.5463

1.1733 3.0612**

- 10.2240 - 1.3756

FAO (196&88)

Rica

in logs

0.6159 4.9955+*

3.0425 1.6071

World Bank (1961-88)

Costa

real coffee prices. All variables

Colombia

estimarionb

Domestic

R-squared Adjusted R-squared

Real exchange r-stat

Real world t-stat

prices

variable

Instrumental

Constant f-stat

variable:

Dependent

Table 2

2.2803 0.6157 20

6.1895 3.0669

1.7857 0.3336 21

7.2526 26.57 1I

0.2237 0.1375

0.3193 1.8350

I .8009 1.6087 0.6922 0.6559

~ 0.0274 -0.4359

3.3477 3.6212**

FAO (196687)

1.4711 3.8523**

~ 11.2701 ~ 1.6280

World Bank (1968-88)

Cote d’lvoire

I .7439 0.7140 25

2.3175 32.2345

0.5025 0.4572

I .0700 2.9396**

0.2270 3.0077**

1.3651 0.7262

World Bank (1963-88)

2.0255 0.8504 22

18.3205 17.6958

0.8328 0.8152

0.5440 2.0118**

0.8944 9.3x3**

-2.3258 ~ 1.7126*

FAO (196688)

Kenya

2.1049 0.8866 26

35.3998 23.9767

0.8416 0.8278

-0.3888 -0.8263

1.0658 9.9562***

I .0993 0.4529

World Bank” (1962-88)

0.887 5.317

0.585 6.047

- 2.232 -2.210

-0.541 - 1.743

0.760 4.014

3.361 1.809

- 0.883 - 2.863

0.733 3.925

5.293 2.925

0.514 3.672

0.02 1 0.388

2.211 2.855

0.996 7.664

0.211 4.575

- 0.948 - 1.398

0.758 3.505

0.907 10.122

- 3.428 - 3.202

-0.160 -0.916

1.030 13.253

0.195 0.217

0.603 0.674 0.486 0.438 0.268 0.705 0.830 0890 0.738 0.823 0.942 0.998 1.575 0.819 1.469 1.135 22 21 22 22 21 21 22 21 (196&87) (1968-88) (196687) (196687) (1968-88) (196X-88) (1968-88) (196687) ~.~. a Excludes long-term capital flows from the list of instrumental variables. Domestic coffee prices are nominal prices from FAO (World Bank) deflated by the corresponding CPI. World coffee prices are New York prices of: Colombian coffee (Colombian Milds) for Colombia, Costa Rica and Kenya; Uganda coffee (Robustas) for Cote d’lvoire. Deflator: Industrial countries CPI (IMF). Real Exchange Rates are multilateral trade weighted. *(**)[***I indicates significance at IO’>, (5”<,) [I?,] level. h Cochrane-Orcutt iterative technique for correction of first-order serial correlation of the error. Instrumental variables: Constant, Real world prices, Real exchange rate( - I), Long-term capital flows in 1980 prices and Nominal devaluation. ’ Instrumental variables: Constant, Real world prices, and Long-term capital flows in 1980 prices.

R-squared Durbm-Watson stat Number of observations Sample period

rate

1.265 5.420

~ 3.888 ~ 3.008

Real exchange r-stat

esrimation.’

0.563 5.601

3SLS

Real world prices t-stat

Constant r-stat

Simultaneous

rate

--

fP969-88)

;ll967-87)

0.597 2.421 21 (1967-87)

1.037 4.261

0.771 5.946

0.039 1.199

0.4936 0.4403 9.2613 8.1142 22

0.5935 1.7741*

0.6708 4.2799**

0.0142 0.368 1

Costa Rica -_ FAO (1966-88)

0.734 2.267 20 (1969-88)

0.724 2.643

0.967 7.427

0.028 0.852

0.7347 0.7034 23.5335 9.6939 20

0.7574 2.4690**

0.9712 6.8541**

0.0285 0.7873

--

::967-87)

0.117 2.574

0.091 0.270

- 0.087 - 1.304

-0.001 - 0.054

0.1132 0.0198 1.2126 23.6919 22

0.0390 0.1033

-0.1076 - 1.5167

- 0.0036 -0.1839

FAO (196687)

Cote d’lvoire

of the logs”

World Bank (1968-88)

in first differences Kenya

;;69-88,

0.345 2.321

0.317 1.516

0.121 2.771

-0.005 -0.354

0.2800 0.2146 4.2783 31.9719 25

0.3113 1.0416

0.1597 2X584**

- 0.0070 - 0.4775

(2:967-87)

0.693 2.118

1.088 2.761

0.736 6.655

0.013 0.439

0.65 16 0.6149 17.7671 12.1007 22

0.7575 1.3837

0.7212 5.so91**

0.0027 0.0847

World Bank FAO (1963-88) (1966-88)

--_

-__ --

0.896 3.320 20 (1969-88)

0.387 1.314

1.063 14.023

0.010 0.462

0.8792 0.8687 83.6968 24.3530 26

0.6468 1.7791*

1.0498 12.7955***

-0.0045 -0.2283

World Bank (1962-88)

a Domestic coffee prices are nominal prices from FAO (World Bank) deflated by the corresponding CPLWorld coffee prices are New York prices oE Colombian coffee (Colombian Milds) for Colombia, Costa Rica, and Kenya; Uganda coffee (Robustas) for Cote d’lvoire. Deflator: Industrial countries CPI (IMF).Real exchange rates are multilateral trade weighted. *(**)[***I indicates significance at 10% (5%) [I%] level.

R-squared Durbin-Watson stat. Number of observations Sample period

1.388 4.123 0.676 2.315

1.373 4.057

Real exchange t-stat

0.546 6.092

0.009 0.369

0.5649 0.5286 15.5802 20.9689 27

0.7257 2.2600**

0.5411 5.4876**

0.0008 0.0365

World Bank (1961-88)

0.592 1.796

0.473 5.072

Real world prices t-stat

rate

0.015 0.609

0.5192 0.4685 10.2568 15.2142 22

1.1803 2.7693**

SUR estimates Constant t-stat

R-squared Adjusted R-squared F-statistic Log of likld fctn Number of observations

Real exchange t-stat

0.4393 4.0213**

prices

Colombia ___ FAO (196&88)

real coffee prices. All variables

Real world I-stat

Domestic

0.0046 0.1630

estimates

variable:

Constant f-stat

OLSQ

Dependent

M. Chdenas

/ Journal of Development Economics 44 (1994) 351-380

373

were serially uncorrelated. Interestingly, when the estimated RER was added to an equation including the observed RER, the coefficient on the former variable came out significantly different from zero only when the variables were expressed in levels. In the first differences case the test rejected the endogeneity hypothesis (and, consequently, the RER was not instrumented in this case). On the contrary, estimates of the regression in levels were computed with an instrumental variables (2SLS) procedure. The results restate the main point: the elasticity of domestic prices with respect to world prices is close to one in Kenya and Costa Rica (for the World Bank data), insignificant (at worse) or small (at best) in C6te d’Ivoire, and intermediate for Colombia. The elasticity with respect to the RER is highest in Colombia, whereas in the other three cases the evidence is ambiguous. In levels, C6te d’Ivoire has (in one case) a high elasticity, Kenya is an intermediate case, while in Costa Rica domestic coffee prices do not seem to be affected by the level of the RER. In differences, however, the RER is significant in the latter country and not in Cote d’Ivoire and Kenya. Lastly, since it is likely that the equations exhibit contemporaneous correlation it may be more efficient to estimate the equations for the four countries jointly. This is done by using a SUR estimation procedure for the equations in first differences and 3SLS for the equation in levels (both procedures require an equal number of observations in all equations so that some data is lost). The results, which are very similar, are reported in the lower part of the tables.

5.2. A closer look at the Colombia

data

Fig. 4 shows the real world and domestic coffee prices, as well as the RER, obtained from Colombian sources (see Ocampo, 1989). A cursory look at the graph suggests that after 1967 (i) domestic price stabilization has been more successful, and (ii) it has relied less on the RER. This observation seems to be confirmed by Figs. 5a and 5b which plot the first differences of the logs (i.e. the growth rates) of real world prices together with the RER and the share received by producers, respectively. In both cases the latter two variables seem to mirror closely changes in world prices. However, the correlation vanishes for the RER during the last part of the sample, indicating that, possibly, in recent years stabilization has relied more on changes in coffee taxation, rather than in the RER. Table 4 tests this hypothesis by looking at the correlation coefficients and the variance-covariance matrix for the relevant variables during different sub-periods. According to the results, during 194G-1987 (domestic coffee price) stabilization in Colombia: (i) accounted for only 10% of the variance in world prices, and (ii) was based on the RER. These results change

M. Cbrdenas 1 Journal ~/Development

314

Economics 44 (1994) 351-380

_

350 1 I 300 ,

0

1940 1,- 1944 1946 1952 732 IG3- zi;- ‘79% -Go- Tis I-1942 1946 1950 1954 1956 1962 1966 1970 1974 1976 1962 1966 ‘““‘“-~g~~~rro~

Year

Fig. 4. Colombia: Real coffee prices (1975 = 100) Source: Ocampo (1989).

dramatically, however, depending on the sub-period under consideration. In fact, it is possible to characterize four different phases: i. 194g-1957 a period of highly volatile world prices and no clear stabilization objective; ii. 19581967 a period of world price stability with an increased ability to tax coffee producers; iii. 1968-1974 a period of even greater world price stability combined with the introduction in 1967 of a crawling peg system; iv. 19755 1987 a period of high world price instability with an increased ability to tax coffee producers. The sub-period results show that during 1940-1957 the correlation between world and domestic (real) prices was close to unity, confirming the absence of a stabilization goal. Interestingly, the stabilizing effect of the RER (which moved in the opposite direction of world coffee prices) was completely undermined by a regressive scheme in coffee taxation. After 1958, with the introduction of additional tools for coffee taxation, the share of world prices received by producers has been used, increasingly, for countercyclical purposes. In fact, the correlation between world prices and this share is negative (and increasing in absolute value) in all the subsequent phases. During 1968-1974, the RER moved independently from coffee prices (a result of the new system adopted). In fact, coffee producers benefitted from a large real depreciation, which resulted in domestic coffee prices having a greater

M. Ckhas

-40

375

i Journal cfD~fve/opmenf Economics 44 (1994) 351-380

!

-601941 ’ ‘~1I 1947 1:

195;. I

.T’ , g59

I

y-&

I

1

1 I -,.g8j

1r’s;7

I

1971

’

Fig. 5a. Colombia:

First differences

1944

Fig. 5b. Colombia: producers.

Real

warn

Real Wo&Prices .

First differences

Prices

1968

1980

1974

1986

Share rcvd by prod ,

in the logs of real world prices and the real exchange

1956

1950

’

1962 Year

1956

1950

1944

1962 Year

1968

1974

Real Exchange

in the logs of real world

prices

1980

rate.

1986

Rate

and the share

received

by

I 0.738290 0.200205 -0.20017

1 0.957569 -0.69293 0.556502

1 0.77478 0.77478 -0.26631 0.301743

1940-1957 Domestic coffee prices World coffee prices Real exchange rate Share received by producers

1958-1967 Domestic coffee prices World coffee prices World coffee prices Real exchange rate Share received by producers

Domestic coffee prices

1 I -0.18919 -0.24381

1 -0.78557 0.508227

1 -0.37430 -0.04178

World coffee prices

matrix Real exchn. rate

matrix

-0.64874

1

1 -0.79760

1 -0.72774

Variance-covariance

Correlation

in logs (I 94&1987).

1940-1987 Domestic coffee prices World coffee prices Real exchange rate Share received by producers

Colombia, all variables Ocampo (1989) dataa

Table 4

1

1

1

Share received by prod.

by the variance

0.8906 0.731173 1.05948 -0.13204 0.260011

0.845657 0.880576 -0.32709 0.170544

0.89938 0.700162 0.174663 -0.11262

Domestic coffee prices

1 1 -0.0994 -0.22262

0.276017 -0.31121

0.263492 -0.13644

0.846269 -0.39718

Real exchn. rate

0.833733

0. I 11056

0.351978

Share received by prod.

in world coffee prices. Using

matrix

1 -0.40325 0.169367

1 -0.34433 -0.02479

World coffee prices

Variance-covariance

has been normalized

1 0.673779 0.501925 -0.43691

1975-1987 Domestic coffee prices World coffee prices Real exchange rate Share received by producers

1 - 0.18985 -0.84526

-

1 0.186637 0.57093

1

1 0.50480

1

1

0.488890 0.471111 0.182846 -0.15062

-

1.618620 1.059477 0.652735 0.25056

-0.09891 PO.41674

1

1 0.143385 ~0.19509 0.590216 0.13252 0.116761

0.069759

0.271444 0.017919 0.243076 ~__ a Variance in World coffee prices: 194tLL-1987 - 0.110772; 194tk1957 - 0.189018; 1958-1967 - 0.017921; 1968-1974 - 0.005161; 1975-1987 0.11927. Domestic coffee prices are domestic prices paid by the Federation deflated by the Colombian CPI. World coffee prices are prices of ‘Other milds’ plus US$.OZ/lb. (a proxy for the effective price paid for Colombian coffee), deflated by the weighted CPI of Colombia’s 29 main trading partners. Real exchange rate is a multilateral (29 currencies) trade weighted index. The nominal exchange rate used in the calculations corresponds to the rate applicable for imports, Share received by producers is the world nominal price expressed in domestic currency (using the imports nominal exchange rate) divided dy the domestic nominal coffee price paid to producers.

1 0.832759 0.66782 -0.57635

1968-197~ Domestic coffee prices World coffee prices Real exchange rate Share received by producers

k

1

$ 2 ,z 2 2 h

.s q a, % 2 e ..

378

M. Girdenus i Journal

of DevelopmentEconomics

44 (1994) 351-380

variance than world prices. Lastly, stabilization was most successful during 1975-1987 when the volatility of domestic prices was only half of that in world prices. This was mainly the result of changes in coffee taxation, rather than in the RER.

6. Conclusions Domestic coffee prices are important macroeconomic variables in coffee producing countries. Using a model that borrows from the New Political Economy literature, the paper analyzes the role of different institutional arrangements in determining the behavior of those prices, and tests its positive implications. Coffee producers bear entirely the fluctuations in world prices in countries like Costa Rica and Kenya, where intervention in domestic pricing decisions is limited. In Colombia and Cote d’Ivoire producers have faced relatively more stable prices. This has reflected, also, a greater level of taxation which reflects the government’s desire for (sectorial) redistribution. In fact, in these two countries industrialization has been favored by policymakers, at the expense of agriculture, as a strategy for economic development. Agricultural (i.e. coffee and cocoa) taxation has been, however, much higher in Cote d’Ivoire. It is possible that in this last country coffee taxation has been too high in the sense that the supply response has been underestimated.

References Akiyama, Takamasa, 1988, Cocoa and coffee pricing policies in Cote d’Ivoire, PPR working paper no. 64 (The World Bank, Washington, DC). Alesina, A., J. Londregan and H. Rosenthal, 1990, A model of the political economy of the United States, Mimeo. (Carnegie Mellon University, Pittsburgh, PA). Atkinson, A. and J. Stiglitz, 1980, Lectures on public economics (McGraw-Hill, Maidenhead). Balassa, Bela, 1988, Temporary windfalls and compensation arrangements, PPR working paper no. 28 (The World Bank, Washington, DC). Bates, Robert H., 1988, Beyond the miracle of the market: The political economy of agrarian development in Kenya (Cambridge University Press, Cambridge) Bates, Robert H., 1989, Politics and agriculture in Kenya, Unpublished manuscript. Bauer, Peter, 1987, Marketing boards, in: John Eatwell, Murray Millgate and Peter Newman, eds., The new Palgrave: A dictionary of economics (Macmillan, London). Bauer. P. and B.S. Yamey, 1968, Markets, market control and marketing reform: Selected papers (Weidenfeld and Nicholson, London). Behrman, Jere R., 1987, Commodity price instability and economic goal attainment in developing countries, World Development 15, no. 5, 5599573. Behrman, J.R., J. Lewis and S. Lofti, 1989, The impact of price instability: Experiments with a general equilibrium model for Indonesia, in: L.R. Klein and L. Marque, eds., Economics In theory and practice: An eclectic approach (Kluwer Academic Publishers, Dordrecht) 599100.

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Economics

44 (IY94)

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