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Testing Hicksian Separability Over Space

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If relative prices of goods within a commodity group are constant, Hicksian separability lets the price of a single good represent the group price level. This is relied on by price questionnaires used in household surveys. Methods of estimating demand systems from household survey data also rely on Hicksian separability. Yet this restriction, and its weaker stochastic form under the Generalized Composite Commodity Theorem, remains untested in cross-sections. We use unique data from Vietnam with multiple specifications from within the same food groups to test if within-group relative prices are constant over space. The data firmly reject these restrictions.

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  • John Gibson & Bonggeun Kim, 2013. "Testing Hicksian Separability Over Space," Working Papers in Economics 13/07, University of Waikato.
    • Handle: RePEc:wai:econwp:13/07
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    1. McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
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    1. Gibson, John & Kim, Bonggeun, 2013. "Quality, Quantity, and Nutritional Impacts of Rice Price Changes in Vietnam," World Development, Elsevier, vol. 43(C), pages 329-340.

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    Keywords

    composite commodity theorem; demand; prices; separability;
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