On estimating the cost of characteristics indices from consumer demand analysis

Abstract

We examine the information content of relative equivalence scales using a multiperiod framework and argue that in the absence of Independence of Base (IB) these scales can be uniquely identified from demand analysis only when the transformations of preferences through time are the same for all household types, a property termed as Intertemporally Invariant Base (IIB) utility. Restrictions imposed by IIB on conditional demands are tested empirically and found rejected within the context of a rank-3 demand system applied to individual household data drawn from the U.K. Family Expenditure Survey 1970-86. Welfare implications of false IIB assumptions are also empirically investigated. JEL Classification: D1A propos de l'estimation du couˆt des indices caracte´ristiques a`partir de l'analyse de la demande des consommateur. Ce me´moire examine le contenu informationnel des e´chelles d'e´quivalence relative en utilisant un cadre d'analyse sur plusieurs pe´riodes, et sugge`re que, en l'absence d'une inde´pendance de la base (IB), ces e´chelles peuvent eˆtre identifie´es d'une manie`re univoque seulement si les transformations de pre´fe´rences dans le temps sont les meˆmes pour tous les types de me´nages. On nomme cette proprie´teú tilite´de base invariante dans le temps (IIB). Les restrictions ve´rifiables impose´es par IIB sur les demandes conditionnelles sont ve´rifie´es empiriquement et sont rejete´es dans le contexte d'un syste`me de demande de rang 3 applique´aux donne´es des me´nages individuels dans une e´tude des de´penses des me´nages de la Grande Bretagne 1970-86. Les implications de faux postulats IIB sont analyse´es empiriquement.

Analysis of Substitute Products in the Demand for Food Products in Côte D’Ivoire

“…The useful properties of the quadratic specification explain the fact that it has been used in a number of studies. Applications of this model to cross-sectional data have been made by Banks et al (1996), Blundell and Robin (2000), Lyssiotou (2003), Nicol (2003), Unayama (2004), and Dhar and Foltz (2005), while applications of it to time series have been made by Jones and Mazzi (1996), Fisher et al (2001) and Karagiannis and Velentzas (2004). In most of these applications, the words "quadratic demand system" appear to be key to the explanation of consumer behaviour.…”

Shape-Invariant Demand Functions

“…Any set of consumers with IB/ESE preferences must also have shape-invariant Engel curves. Estimates, tests, and theory regarding IB/ESE scales include Lewbel (1989), Blundell and Lewbel (1991), Blackorby and Donaldson (1993), Jorgenson and Slesnick (1987), Dickens, Fry, and Pashardes (1993), Pashardes (1995), Gozalo (1997), Pendakur (1998), Blundell et al (1998), Lyssiotou (2003), Yatchew et al (2003), and Stengos et al (2006).…”

Income Dependent Equivalence Scales, Inequality, and Poverty

“…Besides the contributions that are cited in the following, a list which is not necessarily complete includesDickens et al (1993),Pashardes (1995),Plug and van Praag (1995),Gozalo (1997),Kalwij et al (1998),Lyssiotou (2003),Donaldson and Pendakur (2004),Koulovatianos et al (2005b), andde Ree et al (2013).5 A notable exception confirming base independence is the analysis by Koohi-Kamali (2013) who studies demand under wartime rationing and thus a rather special case.…”