ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Are Prices Higher for the Poor-Price Heterogeneity and Real Inequality in Rural Karnataka

Are Prices Higher for the Poor? Price Heterogeneity and 'Real' Inequality in Rural Karnataka Vijayendra Rao A C Komala This paper, based upon a case-study of three villages in Karnataka, uses qualitative and quantitative data to study whether households within the same market pay different prices for identical goods. It is found that not only are unit prices for food heterogeneous, but that the poor pay more for the same goods than the rich. This is because liquidity constraints force poorer households to purchase goods in smalt quantities and consequently subject them to quantity premiums. Quantity effects are directly estimated by OLS and IV for prices, and are found to be particularly acute for dais. Household specific index numbers are calculated to measure this price heterogeneity and are used to adjust nominal incomes to real values. It is found that Gini coefficients of real incomes are between 12 per cent and 23 per cent greater than those for nominal incomes depending upon the price index used. An econometric analysis of the determinants of prices shows that incomes are negatively correlated with prices, as is family size, but that the amount of land owned shows a positive relationship. All of these effects are consistent with a quantity premium explanation.

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