Price elasticities from survey data: Extensions and Indonesian results

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Abstract

This paper extends and improves the author's earlier work on measuring own- and cross-price elasticities from spatial variation in prices using household survey data. Double-logarithmic demand functions are replaced by functions that relate budget shares to the logarithms of prices and incomes, and zero expenditures are treated appropriately. Formulae are developed for estimation and for the calculation of standard errors. Limited Monte Carlo evidence suggests that the asymptotic approximations work well in practice. An eleven–commodity system of food demands is estimated using Indonesian data from 1981.

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The author would like to thank Dwayne Benjamin who provided outstanding research assistance, and two referees and an associate editor for comments on a previous version. The research reported here was carried out for the Welfare and Human Resources Division of the World Bank. The World Bank does not accept responsibility for the views expressed herein, which are those of the author and should not be attributed to the World Bank or to its affiliated organizations.

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