Is a Picture Worth a Thousand Unit Values? Price Collection Methods, Poverty Lines and Price Elasticities in Papua New Guinea

Researchers often use unit values (household expenditures on a commodity divided by the quantity purchased) as proxies for market prices when calculating poverty lines and estimating consumer demand equations. Such proxies are often needed because community price surveys in developing countries are either absent or suffer quality problems. However, biases may result from using unit values, due to measurement error and quality effects. In this paper, we report evidence on a household survey experiment where information on prices was obtained in three ways: from unit values, from a market price survey, and from the opinions of householders who were shown pictures of various items and asked to report the local price. These three sets of price data are used to calculate poverty lines and to estimate systems of demand equations and price elasticities. Our results demonstrate substantial biases when unit values are used as a proxy for market price, even when sophisticated correction methods are applied. In contrast, the performance of the price opinions obtained from householders on the basis of the pictures was much better. Hence, a picturebased methodology appears attractive because it may have lower bias than unit values and be less expensive and easier to manage than community price surveys. JEL: C81, D12, H21, I32