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An Analysis of Household Responses to Price Shocks in Vietnam: Can Unit Values Substitute for Market Prices?

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  • Yoko Niimi

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    (Poverty Research Unit at Sussex, University of Sussex)

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    Abstract

    This paper examines the robustness of Deaton’s widely used method for estimating consumer responses. While unit values, ratios of expenditures to quantities purchased, are often employed in demand analysis as proxies for missing market prices, Deaton argues bias is likely to result as a consequence of both quality effects and measurement error. Hence he proposes a procedure that corrects the bias and enables price elasticities to be obtained in the absence of explicit price information. Given the availability of market price data and unit values in Vietnam, this paper estimates a food demand system and investigates the usefulness of Deaton’s method. It also takes the analysis a step further to the existing literature by computing the welfare impact of price changes to see how Deaton’s method performs in this context. The results demonstrate that Deaton’s method generates materially different price elasticities from those estimated with market prices. However, it produces relatively similar results for the welfare analysis. Deaton’s procedure therefore appears to be valid in welfare analysis at least in the case of Vietnam, but the findings also indicate that its use by policymakers should carry a strong health warning.

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    Bibliographic Info

    Paper provided by Poverty Research Unit at Sussex, University of Sussex in its series PRUS Working Papers with number 30.

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    Length: 60 pages
    Date of creation: May 2005
    Date of revision:
    Handle: RePEc:pru:wpaper:30

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    Keywords: consumer demand; price elasticities; unit values; quality; welfare analysis; Vietnam;

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    References

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    1. Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
    2. Nicita, Alessandro, 2004. "Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare," Policy Research Working Paper Series 3265, The World Bank.
    3. Leif Brubakk, 1997. "Estimation of Price Elasticities from Norwegian Household Survey Data," Discussion Papers 202, Research Department of Statistics Norway.
    4. Stavrev, Emil & Kambourov, Gueorgui, 1999. "Estimation of Income, Own- and Cross-Price Elasticities. An Application for Bulgaria," Transition Economics Series 6, Institute for Advanced Studies.
    5. Yoko Niimi & Puja Vasudeva Dutta & Alan Winters, 2003. "Trade Liberalisation and Poverty Dynamics in Vietnam," PRUS Working Papers 17, Poverty Research Unit at Sussex, University of Sussex.
    6. Loren Brandt & Dwayne Benjamin, 2002. "Agriculture and Income Distribution in Rural Vietnam under Economic Reforms: A Tale of Two Regions," William Davidson Institute Working Papers Series 519, William Davidson Institute at the University of Michigan.
    7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    8. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    9. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
    10. L. Alan Winters, 2002. "Trade Liberalisation and Poverty: What are the Links?," The World Economy, Wiley Blackwell, vol. 25(9), pages 1339-1367, 09.
    11. Nelson, Julie A, 1990. "Quantity Aggregation in Consumer Demand Analysis When Physical Quantities Are Observed," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 153-56, February.
    12. Pitt, Mark M, 1983. "Food Preferences and Nutrition in Rural Bangladesh," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 105-14, February.
    13. Nicita, Alessandro, 2004. "Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico," Policy Research Working Paper Series 3266, The World Bank.
    14. Minot, Nicholas & Goletti, Francesco, 2000. "Rice market liberalization and poverty in Viet Nam:," Research reports 114, International Food Policy Research Institute (IFPRI).
    15. Harold Alderman, 1988. "Estimates of Consumer Price Response in Pakistan using Market Prices as Data," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 27(2), pages 89-107.
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    Cited by:
    1. Heather Klemick, 2008. "Forest Fallow Ecosystem Services: Evidence from the Eastern Amazon," NCEE Working Paper Series 200805, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised May 2008.
    2. Mikkel Barslund, 2011. "Censored Demand System Estimation with Endogenous Expenditures in clustered samples: an application to food demand in urban Mozambique," LICOS Discussion Papers 28011, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Chen, Yuyu & Xing, Weibo, 2011. "Quantity, quality, and regional price variation of cigarettes: Demand analysis based on a household survey in China," China Economic Review, Elsevier, vol. 22(2), pages 221-232, June.

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