An inverse demand analysis with introduction of quality effects: An application to Spanish consumption of fruit and vegetables

Abstract

This article analyzes consumer preference for fruit and vegetables when, by using time series with socioeconomic characteristics of households, there can be seemingly unobserved quality effects, which are increased by aggregation. The changes in Spanish demand for fresh and processed fruit and vegetables over the period 1987-2000 are discussed. Following previous tests and analyses, quantities are taken as predetermined and prices as matching the offer conditions. Thus, quality effects (based on the nutritional and/or health value of the product) are estimated from the error terms associated with the functions of the unit values. Quality variables are introduced as taste shifters in the inverse demand system (Laitinen-Theil model). The results show the positive effects of quality differences on the normalized price for the group of products through own-quality flexibilities, and the negative effects between fresh and processed products through cross-quality flexibilities.