Every week, the Economics Group of King's Business School organises research seminars in economics. Bi-weekly research seminars in economics are organised by the Economics Group of King's Business School together with economists at the Department of Political Economy and Department of International Development. For more information on our activities visit Economics at King's.
This week we welcome Pramila Krishnan (University of Oxford).
"Fading Choice: Transport Costs and Variety in Consumer Goods."
We examine the spatial variation in variety of manufactured goods to study how choice fades with distance. We model monopolistically-competitive trade between market town and village and show how transport costs reduce consumer welfare through reduced variety. We use data from a purpose-designed survey of shops and consumers in villages in Ethiopia and prices of matched source and destination goods to estimate similar tastes for variety across space. Our estimates suggest an average mark-up of 10-15% and welfare costs of falling variety at 19% on average of expenditures on manufactures, in contrast to the effect of prices at an average of 1.75%. The cost of lower variety in remote places is substantial.