Using Income Classes to Estimate Consumption Parameters for Food Policy Analysis
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This paper develops an approach to estimate consumption parameters by income classes. It combines price elasticities estimated from aggregated market data and income-class-specific income elasticities derived from household expenditure surveys using Slutsky relationships to calculate income-class-specific price elasticities. The approach was applied to estimate income-class-specific price elasticities for major agricultural commodities consumed in Jamaica. The importance of these elasticities for food policy analysis is demonstrated by using an econometric simulation model framework. Food policy analysis based on aggregate consumption parameters may introduce bias into the results. This is particularly true in the case of developing countries where disparity between low- and high-income groups is very high.