An Evaluation of Rise in Food Price on Welfare of Urban Households in Iran

This paper aims at investigating the effect of increase in food price (bread, red meat, white meat, dairies and egg) on the welfare of urban households in Iran. To this end, the theory of demand and specifically the AIDS was employed to estimate the demand equation; and Compensating Variation Criterion is used to assess changes in consumer welfare. Estimating the demand system of urban households based on budget data for the period 1996-2010 is performed by using panel data. The results show that reduced welfare due to increased food prices among the low-income deciles is greater than among the middle and top-deciles. Results, based on Engel Law, show budget share of food in low-income households is greater than high-income households and as a result, rises in the food prices directly affect this households expenditure and reduces their welfare more than that of the others.; ;