An Analysis of Household Behaviour to Price Shocks in Vietnam:

This paper estimates a demand system of food commodities based on the Vietnamese household survey data. When estimating consumer behaviour for developing economies, one of the problems that researchers often come across is the unavailability of price data. A common practice has been to use unit values, ratios of expenditures to quantities purchased, as proxies for market prices. However, Deaton (1988) criticises the direct substitution of unit values for prices in the demand analysis because bias is likely to result as a consequence of quality effects and measurement error. In order to overcome this problem, Deaton (1988, 1990 and 1997) proposes a procedure that corrects the bias and hence enables us to obtain price elasticities in the absence of price information. Given the availability of price data in the case of Vietnam, this paper investigates the validity of Deaton’s method, which has hardly been examined despite its popular application. The results demonstrate that Deaton’s method fails to reproduce the price elasticities estimated with market prices and pose a question on its usefulness. 1 I am grateful to my supervisor, Professor L. Alan Winters, for his valuable guidance and comments. I would also like to thank the Poverty Research Unit at Sussex for permission to access to the Vietnamese Living Standard Measurement Surveys. 2 School of Social Sciences and Cultural Studies, University of Sussex, Falmer, Brighton, BN1 9SN, UK. E-mail: [email protected]