Prices, unit values and local measurement units in rural surveys: an econometric approach with an application to poverty measurement in Ethiopia

For many research problems in developing countries, some information on prices faced by households is required for the analysis, for example if subsistence consumption is a substantial part of consumption. These prices are not readily available from household surveys, nor is it straightforward to observe them. Furthermore, quantities consumed and produced are often in local units presenting further problems for the analysis. We provide an econometric approach to estimate prices and quantity conversion factors from household expenditure data. We use panel data from rural Ethiopia to illustrate the approach and to investigate the potential exogenous quality bias in the estimation of the prices. In an application, we show that the conclusions about poverty changes over time are significantly affected by using less appropriate strategies to convert local units and to value subsistence consumption. We find that mean unit values result in the overestimation of prices due to outliers and other sources of measurement error. Exogenous consumer price sources, often collected at larger markets outside the village, tend to be slightly lower than our estimates.