Demand systems with unit values:: A comparison of two specifications
The availability of quantity information along with expenditure information in some household surveys allows the estimation of price reactions on the basis of unit values. We compare two specifications that have been proposed in this context by Deaton (1990) and Crawford et al. (1997) in order to take account of quality effects reflected in the unit values. Using simulated data for a two-good model, and keeping Marshallian elasticities fixed, we compare true and pseudo-true quantity and quality elasticities. Expenditure elasticities are close, but we find large differences in price elasticities and even sign reversals. This suggests that, while convenient in the situation where prices are not observable, these specifications lack flexibility.
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- Deaton, Angus, 1990.
"Price elasticities from survey data : Extensions and Indonesian results,"
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30, World Bank - Living Standards Measurement.
- Preston, Ian & Laisney, François & Crawford, Ian A., 1997.
"Estimation of Household Demand Systems Using Unit Value Data,"
ZEW Discussion Papers
97-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Ian Preston & Ian Crawford & François Laisney, 1996. "Estimation of household demand systems using unit value data," IFS Working Papers W96/16, Institute for Fiscal Studies.
- Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
- Oberhofer, W & Kmenta, J, 1974. "A General Procedure for Obtaining Maximum Likelihood Estimates in Generalized Regression Models," Econometrica, Econometric Society, vol. 42(3), pages 579-90, May.
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