Price, unit value, and quality demanded
Given the paucity of quality price data, it is common to rely on "unit value" (average expenditure per unit) as a proxy for price, but this is an imperfect proxy if households respond to price increases by substituting to lower quality goods. This paper draws on survey data that contain both unit value and price to estimate the severity of quality substitution in Indonesia, finding that it is prevalent. The paper next calculates price elasticities that correct for quality substitution, evaluating and ultimately rejecting a commonly used method for calculating price elasticities using only unit value data. Finally, it demonstrates that quality substitution can result in biased price elasticities even when price is perfectly observed.
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References listed on IDEAS
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- Deaton, A., 1988.
"Quality, Quantity, And Spatial Variation Of Price,"
30, World Bank - Living Standards Measurement.
- Deaton, A., 1988.
"Price Elasticities From Survey Data: Extensions And Indonesian Results,"
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- Deaton, Angus, 1990. "Price elasticities from survey data : Extensions and Indonesian results," Journal of Econometrics, Elsevier, vol. 44(3), pages 281-309, June.
- Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
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- 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 153-156, February.
- Abbi Mamo Kedir, 2005. "Estimation of Own- and Cross-price Elasticities using Unit Values: Econometric Issues and Evidence from Urban Ethiopia," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(1), pages 1-20, March.
- Gracia, A. & Albisu, L. M., 1998.
"The demand for meat and fish in Spain: Urban and rural areas,"
Blackwell, vol. 19(3), pages 359-366, December.
- Gracia, A. & Albisu, Luis Miguel, 1998. "The demand for meat and fish in Spain: Urban and rural areas," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 19(3), December.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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