25 September 2010

The Economics of Marmite?

people often retain very strong preferences for the kinds of food they grew up eating. Just ask the expatriate Britons who flock to “Tea and Sympathy” in New York’s Greenwich Village for pots of Marmite, a yeast-based spread whose delights baffle other nationalities (and many of their own compatriots).

So what you might say? Well,

the effects of habit formation in consumption may also lead economists to rethink the way they calculate the gains from trade. This is because opening up to trade is in some ways akin to migrating. It changes the composition and prices of the goods that are available to a person. In particular, it can raise the relative prices of the goods that a region or country has a comparative advantage in, such as crops that the country’s climate or soil favour. These are the things that would have been relatively cheap and common in a closed economy and therefore the things that people might have acquired a taste for. To the extent that such preferences persist, people will benefit less from the increased variety of goods and altered relative prices that trade brings about than they would do if habits were not a significant determinant of consumption.

And the bottom line: for internal migrants within India:

As a consequence, migrant families consume fewer calories per rupee of food expenditure than non-migrants do.

That is fine Mr. Economist journalist, but how much fewer? 50 percent fewer calories? 0.00004 percent fewer calories? Don’t magnitudes matter? For that I had to go to the original paper by David Atkin.

holding total food expenditure constant, there will be an average caloric loss of 2.7 percent coming from the correlation between tastes and price changes (about 54 calories per person per day) … In geographic terms, the negative caloric impacts that come from tastes correlating with price changes will not be spread uniformly across India … with poorer regions more likely to suffer caloric losses on the consumption side, with predicted caloric losses of 20 percent in some of the poorest regions.

So yeah then, er, 20 percent is pretty big.

I’d better go pack some marmite in my suitcase.

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