An attempt to measure quality elasticities of demand from greek family budget data

Abstract

An attempt is made to estimate quality elasticities of demand using cross-sectional survey data
for Greek households. The technique developed here -a system of demand equations in two stagesis
parallel to Deatons' general methodology of exploring quality, quantity and spatial variation of
prices contained in surveys where both expenditures and physical quantities are reported. In these
surveys, market prices themselves are not observed. However, unit values can be obtained by dividing
recorded expenditures by recorded quantities purchased, but these can not be used as direct
substitutes for true market prices as they reflect quality as well as genuine price variation, and further
they are subject to errors of measurements. The method applied suggests a proper disentangle of
all these so as unit values can be used finally as a measure mainly of quality effects free of errors.
Using data of 6.489 households, classified in 1.376 survey clusters (national survey 1987/8), for 39
food groups and varieties, quality demand functions and elasticities are efficiently estimated and
compared with the corresponding quantity elasticities.