Welfare analysis of price stabilization: a case study of small chili in West Nusa Tenggara Province, Indonesia

Abstract

As one among others strategic commodity in which its price often fluctuate seasonally, price stabilization of chili commodity is conducted through import regulation. This research aims at analyzing the welfare impacts of this price stabilization policy by utilizing monthly time series data of 2012-2016. Data were then analyzed using Eviews 6.0 software package. The simultaneous equation model and two-stage least square (TSLS) estimation technique were undertaken. Results conclude that the source of chili price instability comes from a supply shock. Moreover, price stabilization policy has benefitted producers/farmers, consumers, and society as a whole indicated by the positive sign of their welfare gains.