Effects of Changes in Household Size,Consumer Taste & Preferences on Demand Pattern in India

Current research in applied demand analysis has been addressing the twin issues of degree of non-linearity or curvature of the Engel curves and the ability to capture price effects appropriately by the demand system. Further, in addition to income and prices, the role of demographic variables like household size, composition and dynamic aspects like consumer taste & preferences are also being ’ emphasized in recent literature. Continuous efforts are being made to modify the existing models and propose new ones to incorporate the above developments. The purpose of this study is to re-examine the usefulness of the popular linear expenditure system vis-à-vis the two other flexible models viz. Nasse expenditure system, a generalization of the linear expenditure system itself, and the almost ideal demand system in the above context for India.The empirical results indicate wide variation in marginal budget shares and demand elasticities across income groups, rural-urban sectors and alternative models. The household size and consumer taste & preferences are found to be statistically significant. The results confirm the earlier findings that there are significant changes in consumer tastes away from cereals and pulses in favor of other food and nonfood commodities. The results also show that flexible models, which are theoretically superior, gave unacceptable positive price responses for some commodities and violated second order conditions of utility maximization. It is found that some ad-hoc separability restrictions are needed, thereby limiting the flexibility of the model, to get negative own-price responses in these models. But, second order conditions are still violated. The tests of nested hypotheses also confirm the need for inclusion of household size, consumer taste, income group and rural-urban dummies along with their interaction variables in the demand system.

     

Assessing the Impact of Changes in Petroleum Prices on Inflation and Household Expenditures in Australia

This article analyses the expected impact of a twofold rise in petrol prices on sectoral prices and household expenditures in Australia using 1996–97 and 1977–78 input-output tables.     

Household demand for fats and oils: two-step estimation of a censored demand system

A censored system of household fat and oil demand equations is estimated with a two-step procedure, using cross-sectional data from the 1987–1988 US Nationwide Food Consumption Survey. Own price and total expenditure elasticities are close to unity and there is no evidence of gross substitutability. Compensated elasticities suggest net substitution among the products considered.     

Telephone pricing structures: The effects on universal service

We use 1987 data to study the household demand for access to the telephone system. Previous analyses find demand to be highly inelastic and, therefore, predict that local rate increases will have little impact on the goal of providing universal telephone service. We estimate that price has a considerably stronger effect on access demand, especially at low incomes, and argue that elasticities increased in the 1980s. But our evidence also suggests that the structure of telephone rates matter: where local measured service is available, changes in flat rate prices have no effect on access demand.     

Hysteresis and sluggishness in Portuguese unemployment, 1977–88

The phenomenon of unemployment persistence led to the development of alternative theories of unemployment. Among these the ‘hysteresis’ concept by Blanchard and Summers (1987) received a wide interest. Based on this notion we developed a generalized model that nests Blanchards and Summers' theory. Using this framework we conducted an empirical investigation for the Portuguese labour market (1977–88). The results obtained point towards the existence of labour demand sluggishness, wage inertia and unemployment hysteresis. The model also suggests the existence of a rather inelastic labour demand curve.     

Patents,brand-generic competition and the pricing of ethical drugs in Canada: some empirical evidence from British Columbia, 1981-1994

This paper examines the impact of the 1987 changes in the Canadian Patent Act on the pricing of ethical drugs. From 1969 to 1987 Canada opted to control pharmaceutical prices by using the compulsory licensing provisions of the Act to promote competition between branded drugs and their generic equivalents. In 1987, however, the Act was amended to guarantee patent holders an extended period (7–10 years) of protection. This reduced brand-generic competition by retarding generic entry and suggests that, ceteris paribus, after 1987 pharmaceutical prices increased relative to pre-1987 prices. This hypothesis is examined for the period 1981–1994 using a sample of 82 drugs from the British Columbia Pharmacare Programme. The major conclusions are: despite evidence of significant first mover advantages which resulted in higher brand prices, competition from generics succeeded in reducing overall market prices prior to 1987; but, after 1987, the efficacy of generic competition was reduced and both brand and market prices increased.     

The demand and supply of credit for households

The demand and supply of credit in the rural credit markets is investigated in this article using household data from India. The aim is to study the effects of household, farm productive characteristics and the policy variables on the demand and supply of credit. A type 3 Tobit model is estimated which corrects for sample selection and endogeniety bias. In addition, a generalized Double Hurdle model is estimated where the information on the household's access to credit is included to estimate the demand and supply of credit. The results suggest that the size of the operational holdings, net-wealth, dependency ratio, educational level of the household and the wages and output prices are important determinants of the demand and supply of credit for farm households. The Double Hurdle model confirms that the ‘size of land owned’ plays a crucial role in whether the household has access to a loan or not.     

A cross-country analysis of consumption patterns

This paper uses the system-wide approach to analyse the consumption patterns in 18 OECD countries. The results show that, on average, the OECD per capita consumption increased by 3% per annum and prices increased by about 7% per annum; OECD consumers spend about half of their income on food, housing and transport. It is also shown that, in most OECD countries, food, housing and medical care are necessities and clothing, durables, transport and recreation are luxuries, and that the demand for all goods considered are price inelastic. The controversial hypothesis of Stigler and Becker (1977) that tastes are the same across countries is also tested and it is found that the OECD consumption data do not support their claim.     

Microeconometric models of infrequently purchased goods: An application to household pork consumption

The double-hurdle and infrequency-of-purchase models are generalized with the inverse hyperbolic sine transformation in the dependent variable. The resulting specifications feature more flexible parameterization and error distributions than the untransformed models. Using the 1987–88 Nationwide Food Consumption Survey data on household pork consumption, a nonnested test suggests that the IHS double-hurdle model provides better characterization of the data-generating process than the IHS infrequency-of-purchase model but the elasticities derived from these models are similar. Own-price effects on the probability and level of consumption are negative and significant, but the elasticities are small. Income and cross-price effects are not significant. Household age composition, education, gender of meal planner, and race are among the demographic variables that affect consumption.     

The effects of price on household demand for food and calories in poor countries: are our databases giving reliable estimates?

Food price policy relies heavily on estimated price elasticities of food demand to help balance the nutritional and economic objectives in poor countries. Economists use either unit values (ratios of household expenditure to quantity purchased) or community prices (enumerated from vendors in local markets) as proxies for market prices when estimating price elasticities with household survey data. Biases are believed to result from using unit values, due to measurement error and quality effects, but evidence on this issue is lacking and even less is known about community prices. This article provides an empirical evidence from Vietnam, which suggests that economists should exercise caution when estimating price elasticities from household surveys. A 14-food demand system is estimated alternatively with unit values or community prices, and the elasticity of calories with respect to rice prices is calculated. This elasticity is more than twice as large (?0.54 versus ?0.22) when community prices are used rather than unit values. Hence, conclusions about the nutritional effects of rice price increases appear sensitive to data choices made by economists. More generally, this discrepancy suggests that the household survey databases commonly used by economists may not provide reliable estimates.     

On the simultaneity of innovations and market structure

This paper examines the determinants of innovations and market structure within a simultaneous framework. From a competitive fringe model, quasi-conditional factor demand functions are derived that explain product and process innovations in terms of factor prices and market structure variables such as relative firm size, market size, and the concentration ratio where the latter set of variables result from the same optimizing process.Empirical evidence is gained from a cross section of 2276 West German firms in the manufacturing sector. In contrast to many other empirical studies, product and process innovations are measured by two dichotomous variables. An exogeneity test for the probit model is worked out and the conditional maximum likelihood estimator that emerges from this test is applied. The results show that simultaneity does matter, even if innovations are explained by market structure variables at the firm level. Accounting for endogeneity and cross-equation restrictions changes the results substantially.     

Increasing wage dispersion and the changes in relative employment and wages in Mexico's urban informal sector: 1987-1993

This study analyses the role of changes in informal/formal relative employment, wage levels and wage inequality in explaining increasing wage dispersion in Mexico during the 1987–1993 period. From 1987 to 1993, the variance of the log of hourly wages for Mexican workers increased by more than 50 per cent. Using data from the Encuesta nacional de empleo urbano we find that this increase in the overall wage dispersion was mainly driven by increasing wage dispersion in the formal sector coupled with a faster growth in formal sector employment as a percentage of total employment. However, compression in the distribution of wages within the informal sector contributed to substantially slowdown the increasing overall wage inequality. About 60 per cent of the 1987–1993 4.65 percentage point reduction in the informal sector share of total employment is explained by changes in the structure that determines sectoral employment; the rest is explained by changes in the composition of the labour force, particularly increases in the sectoral education gap and a change in the regional relative share of sectoral employment. Also, from 1987 to 1993 the sectoral wage ratio increased from 0.59 to 0.63. It seems that a relative improvement in unobserved skills in the informal sector helped to close the wage differential but this effect was partially offset by an increase in the relative prices of both observed and unobserved skills, as well as increases in relative observed skills in the formal sector, particularly education.     

Another look at the identical tastes hypothesis on the analysis of cross-country alcohol data

A number of studies have appeared in the area of cross-country consumption comparisons, where a common system of demand equations is used to model the consumption patterns of all countries. Under this approach, tastes are taken to be the same internationally. Such an assumption of identical tastes was forcibly advocated by the dual Nobel laureates, Stigler and Becker, who argued that tastes neither change capriciously nor differ importantly between people. In this paper, we use the system-wide approach to demand analysis to analyse the alcohol consumption patterns of drinkers from 10 high-income industrialised countries and verify Stigler and Becker’s (Rev Econ Statist 59:113–118, 1977) hypothesis by testing whether pooling the data across countries is acceptable. We also present the implied demand elasticities for beer, wine and spirits for the 10 countries and discuss the use of these elasticities in policy-related applications.     

Factor-Price Equalization By Trade In Joint and Non-Joint Production

Sans joint products, relative factor prices do determine relative goods prices. Free trade in goods thus can hope to equalize factor returns when this relationship is monotone and therefore uniquely reversible. However, when joint production obtains, often the same relative factor prices can entail an infinity of relative goods prices depending upon the composition of tastes and demand. In consequence, trade's equalization of goods prices is compatible with factor-returns inequality. Generic and singular relationships are described.     

贫富差距、供求弹性与房价*

近些年，中国的贫富差距和房价居高不下，但现有文献忽视供求弹性与贫富差距交互作用对房价的影响。据此，本文构建结合贫富差距和供求弹性的住房存量调整模型，使用中国2002—2012年7省份33个城市的UHS数据发现，收入和财富的基尼系数对房价有正影响；供求弹性对房价分别有负影响和正影响；收入和财富基尼系数与供求弹性交互项对房价分别有正影响和负影响。据此，为防止房价泡沫，各级政府一方面应缩小贫富差距，另一方面应增加土地和住房供给。     

CONSUMPTION (IN)EFFICIENCY AND FINANCIAL ACCOUNT MANAGEMENT

Consumption may be inefficient when a household cannot choose the optimal bundle of goods at a minimum cost. After discussing alternative approaches, this paper proposes the use of money metric indirect utility function motivated by Feenstra and Varian in measuring consumption inefficiency. Then, Bamoul–Tobin transactions demand for money model is extended to show how household ability to manage its income, expenditure and financial accounts may affect consumption inefficiency. Results of the stochastic cost frontier approach, which is employed in estimation and the prediction of the European Union household consumption inefficiency, suggest that household expenditure performance is partly explained by the changes in the consumption efficiency and the efficiency is not independent of financial account management.     

Can learning explain boom-bust cycles in asset prices? An application to the US housing boom

This paper argues that boom-bust behavior in asset prices can be explained by a model in which boundedly rational agents learn the process for prices. The novel feature of the model is that learning operates in both the demand for assets and the supply of credit. Interactions between agents on either side of the market create complementarities in their respective beliefs, yielding strong internal propagation. The model is applied to US housing markets. Quantitative exercises explain the recent boom-bust in US house prices from observed fundamentals whilst replicating key moments of housing market variables at business cycle frequencies.     

Against the Wind: Bargaining Recentralisation and Wage Inequality in Norway 1987–91

In the late 1980s, Norway's labour market experienced similar supply and demand shifts for skills to other countries', but unlike other OECD nations, Norway's wage setting system became more centralised. The pay distribution in Norway became more compressed at the bottom from 1987 to 1991, while low wage workers in other countries lost ground relatively. Using Norwegian microdata for 1987 and 1991, I found that changing labour market prices helped cause this wage compression. Further, the less educated had declining relative overall employment but increasing relative public sector employment, both possible labour market responses to the wage compression     

HOUSEHOLD CONSUMER EXPENDITURE INEQUALITIES IN INDIA: A DECOMPOSITION ANALYSIS

The objectives of this study are to decompose household consumer expenditure inequalities in India by regions (states) and sectors (urban-rural) for the years 1977–78 and 1983 based on the National Sample Survey data. A class of Generalised Entropy measures is used. Our results consistently indicate that the inequality within states contributes much more towards national inequality and within-sector inequality explains a large part of state level inequality. The inequality at state levels has shown a decline from 1977–78 to 1983 due to a better monsoon season in 1983, and anti-poverty programmes.     

The Pattern of Exchange Rate Effects on Chinese Prices, 1980–2002

This study sheds light on the current debate on the effect of the urged appreciation of the Chinese yuan by examining the linkage between currency‐value changes and domestic producer prices, using annual data from 14 broad industry sectors in China for the years 1980–2002. A structural break analysis implies that only in the past decade, when price liberalization was essentially achieved and the deepening of state‐owned enterprise reform was in place, has an economic system in which prices respond to exchange rate fluctuations via the expected market mechanism been set up in China. Incomplete exchange rate passthrough to domestic prices is estimated and is found to vary across industries and over time. The variations are suggested to be explained by a set of variables that characterize market competitiveness, infrastructure development, and the increasing proportion of nonstate‐owned enterprises in the economy.