IDEAS home Printed from https://ideas.repec.org/p/unm/unumer/2018033.html
   My bibliography  Save this paper

Price opinion data in subsidized economies: Empirical evidence from Iraq

Author

Listed:
  • Abuelhaj, Tareq

    (Maastricht University)

  • Gassmann, Franziska

    (UNU-MERIT, Maastricht University)

  • O'Donoghue, Cathal

    (UNU-MERIT, Maastricht University, and National University of Ireland)

Abstract

Distortions resulting from consumption subsidies or rationing systems often lead welfare analysts to use market price opinions, where household budget survey respondents are asked to provide their opinions of equivalent market prices of subsidized or rationed goods, to value consumption of the rationed goods. This is because prices paid by households for rationed goods do not represent the true marginal utility from consumption of these goods. This is the case in household budget surveys undertaken in Iraq, for example, where rationed food items received through the Public Distribution System are valued at market prices using price opinion data rather than at official prices facing households. Despite the fact that most Living Standards Measurement Surveys conducted in countries that maintain consumption subsidies collect market price opinions, little evidence exists to support the notion that respondent opinions on market prices adequately approximate shadow prices of subsidized or rationed commodities. This paper explores the adequacy of market price opinions of subsidized food commodities using data from Iraq. The evidence presented here suggests that price opinions of subsidized food commodities are influenced by the importance of the subsidy in the household economy - a reflection of household welfare levels and preferences. This leads to the conclusion that price opinion data for subsidized goods distorts the estimated transfer value of the PDS food subsidy and biases welfare analysis, particularly affecting the ability to monitor trends over time.

Suggested Citation

  • Abuelhaj, Tareq & Gassmann, Franziska & O'Donoghue, Cathal, 2018. "Price opinion data in subsidized economies: Empirical evidence from Iraq," MERIT Working Papers 2018-033, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2018033
    as

    Download full text from publisher

    File URL: https://www.merit.unu.edu/publications/wppdf/2018/wp2018-033.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:pri:rpdevs:deaton_tarozzi_prices_poverty is not listed on IDEAS
    2. Kochar, Anjini, 2005. "Can Targeted Food Programs Improve Nutrition? An Empirical Analysis of India's Public Distribution System," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 203-235, October.
    3. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    4. Lionel McKenzie, 1957. "Demand Theory Without a Utility Index," Review of Economic Studies, Oxford University Press, vol. 24(3), pages 185-189.
    5. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
    6. Bart Capéau & Stefan Dercon, 2006. "Prices, Unit Values and Local Measurement Units in Rural Surveys: an Econometric Approach with an Application to Poverty Measurement in Ethiopia," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(2), pages 181-211, June.
    7. Grosh, M.E. & Glewwe, P., 1995. "A Guide to Living Standards Measurement Study Surveys and their Data Sets," Papers 120, World Bank - Living Standards Measurement.
    8. Blackorby, Charles & Donaldson, David, 1988. "Money metric utility: A harmless normalization?," Journal of Economic Theory, Elsevier, vol. 46(1), pages 120-129, October.
    9. McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
    10. John Gibson & Scott Rozelle, 2005. "Prices and Unit Values in Poverty Measurement and Tax Reform Analysis," The World Bank Economic Review, World Bank Group, vol. 19(1), pages 69-97.
    11. Blackorby, Charles & Donaldson, David, 1987. "Welfare ratios and distributionally sensitive cost-benefit analysis," Journal of Public Economics, Elsevier, vol. 34(3), pages 265-290, December.
    12. Lee, Lung-Fei & Pitt, Mark M., 1987. "Microeconometric models of rationing, imperfect markets, and non-negativity constraints," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 89-110.
    13. Angus Deaton & Salman Zaidi, 2002. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," World Bank Publications, The World Bank, number 14101, April.
    14. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
    15. Irene Hueter, 2016. "Latent Instrumental Variables: A Critical Review," Working Papers Series 46, Institute for New Economic Thinking.
    16. World Bank, 2014. "The Unfulfilled Promise of Oil and Growth : Poverty, Inclusion and Welfare in Iraq 2007-2012," World Bank Publications - Reports 21364, The World Bank Group.
    17. Ravallion, M., 1998. "Poverty Lines in Theory and Practice," Papers 133, World Bank - Living Standards Measurement.
    18. repec:pri:rpdevs:deaton_tarozzi_prices_poverty.pdf is not listed on IDEAS
    19. H. S. Houthakker, 1952. "Compensated Changes in Quantities and Qualities Consumed," Review of Economic Studies, Oxford University Press, vol. 19(3), pages 155-164.
    20. E. Rothbarth, 1941. "The Measurement of Changes in Real Income under Conditions of Rationing," Review of Economic Studies, Oxford University Press, vol. 8(2), pages 100-107.
    21. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    22. Yoko Niimi, 2005. "An Analysis of Household Responses to Price Shocks in Vietnam: Can Unit Values Substitute for Market Prices?," PRUS Working Papers 30, Poverty Research Unit at Sussex, University of Sussex.
    23. Adams, Richard H. Jr., 2000. "The politics of economic policy reform in developing countries," Policy Research Working Paper Series 2443, The World Bank.
    24. Richard HERMIDA, 2015. "The problem of allowing correlated errors in structural equation modeling: concerns and considerations," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 3(1), pages 05-17, June.
    25. Che Wan Jasimah Bt Wan Mohamed Radzi & Huang Hui & Nur Anisah Binti Mohamed @ A. Rahman & Hashem Salarzadeh Jenatabadi, 2017. "Family Food Security and Children’s Environment: A Comprehensive Analysis with Structural Equation Modeling," Sustainability, MDPI, vol. 9(7), pages 1-19, July.
    26. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-1289, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edward E. Schlee & M. Ali Khan, 2022. "Money Metrics In Applied Welfare Analysis: A Saddlepoint Rehabilitation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 189-210, February.
    2. Bosmans, Kristof & Decancq, Koen & Ooghe, Erwin, 2018. "Who's afraid of aggregating money metrics?," Theoretical Economics, Econometric Society, vol. 13(2), May.
    3. Andalón, Mabel & Gibson, John, 2018. "The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda," MPRA Paper 86370, University Library of Munich, Germany.
    4. Mabel Andalon & John Gibson, 2017. "The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda," Working Papers in Economics 17/07, University of Waikato.
    5. Gilles Quentin Kane & Gwladys Laure Mabah Tene & Jean-Joël Ambagna & Isabelle Piot-Lepetit & Fondo Sikod, 2015. "The impact of food price volatility on consumer welfare in Cameroon," Working Papers hal-02801351, HAL.
    6. Gilles Quentin Kane & Gwladys Laure Mabah Tene & Jean Joël Ambagna & Isabelle Piot-Lepetit & Fondo Sikod, 2015. "The impact of food price volatility on consumer welfare in Cameroon," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    7. Pourya Valizadeh & Travis A Smith, 2020. "How Did The American Recovery and Reinvestment Act Affect the Material Well‐Being of SNAP Participants? A Distributional Approach," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(3), pages 455-476, September.
    8. Christopher Chambers & Takashi Hayashi, 2012. "Money-metric utilitarianism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(4), pages 809-831, October.
    9. Deaton, A. & Zaidi, S., 1999. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," Papers 192, Princeton, Woodrow Wilson School - Development Studies.
    10. John Gibson & Bonggeun Kim, 2017. "30 Years of Being Wrong: A Systematic Review and Critical Test of the Cox and Wohlgenant Approach to Quality-Adjusted Prices in Demand Analysis," Working Papers in Economics 17/16, University of Waikato.
    11. Elleby, Christian, 2014. "Poverty and Price Transmission," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182722, European Association of Agricultural Economists.
    12. John Gibson & Alessandro Romeo, 2017. "Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 4(3), pages 405-416, September.
    13. Phadera,Lokendra & Sharma,Dhiraj & Wai-Poi,Matthew Grant, 2020. "Iraq's Universal Public Distribution System : Utilization and Impacts During Displacement," Policy Research Working Paper Series 9155, The World Bank.
    14. Charles Ackah, & Simon Appleton, 2007. "Food Price Changes and Consumer Welfare in Ghana in the 1990s," Discussion Papers 07/03, University of Nottingham, CREDIT.
    15. Ali Khan, M. & Schlee, Edward E., 2017. "The nonconcavity of money-metric utility: A new formulation and proof," Economics Letters, Elsevier, vol. 154(C), pages 10-12.
    16. Huffman, Sonya Kostova, 1999. "Changes of household consumption behavior during the transition from centrally-planned to market-oriented economy," ISU General Staff Papers 1999010108000013568, Iowa State University, Department of Economics.
    17. Ulrik Beck, 2015. "Keep it real: Measuring real inequality using survey data from developing countries," WIDER Working Paper Series 133, World Institute for Development Economic Research (UNU-WIDER).
    18. M. Ali Khan & Edward E. Schlee, 2016. "On Lionel McKenzie's 1957 intrusion into 20th‐century demand theory," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 589-636, May.
    19. Gibson, John & Kim, Bonggeun, 2015. "Hicksian separability does not hold over space: Implications for the design of household surveys and price questionnaires," Journal of Development Economics, Elsevier, vol. 114(C), pages 34-40.
    20. Tagliati, Federico, 2022. "Welfare effects of an in-kind transfer program: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 154(C).

    More about this item

    Keywords

    Subsidies; rationing; prices; welfare; poverty analysis;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unm:unumer:2018033. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/meritnl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ad Notten (email available below). General contact details of provider: https://edirc.repec.org/data/meritnl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.