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Showing papers on "Consumption (economics) published in 1970"


Journal ArticleDOI
TL;DR: In this paper, the authors formulate a model of consumer behavior based on habit formation, beginning with a specific class of demand functions derived from the modified Bergson family of utility functions, and then postulate that the parameters of these utility functions and the corresponding demand functions are briefly summarized in Section 1.
Abstract: Most economists would agree that past consumption patterns are an important determinant of present consumption patterns, and that one ought to distinguish between long-run and short-run demand functions. But although the distinction between long-run and short-run behavior is traditional in the theory of the firm, it is seldom made in the theory of consumer behavior. If we regard demand theory as a theory of how a given amount of money (expenditure, called income) is allocated among goods, then-in a world without consumer durables-there are three reasons why longand shortrun demand functions might differ. (i) The consumer may have contractually fixed commitments which prevent him from adjusting some portion of his consumption (for example, housing) in response to changes in prices or income. When these fixed commitments lapse, he is able to adjust to his long-run equilibrium. (ii) The consumer may be ignorant of consumption possibilities or of his own tastes outside the range of his past consumption experience. In this case his adjustment to a new price-income situation will involve a time-consuming learning process. (iii) Finally, goods may be "habit forming" so that an individual's current preferences depend on his past consumption patterns. In this case a change in prices or income will cause a change-in consumption which will induce a change in tastes, which will cause a further change in consumption. In this paper I formulate a model of consumer behavior based on habit formation, beginning with a specific class of demand functions derived from the "modified Bergson family" of utility functions. The properties of these utility functions and the corresponding demand functions are briefly summarized in Section 1. I then postulate that the parameters

870 citations


Posted Content
TL;DR: P Phelps, Nils Hakansson, and Jan Mossin this paper reviewed uncertainty models of the multi-period consumption-investment problem, and presented a more general multperiod consumption investment model that leads to interesting hypotheses about observable aspects of consumer behavior.
Abstract: Publisher Summary The simplest version of the multiperiod consumption-investment problem considers a consumer with wealth w1, defined as the market value of his assets at the beginning of period 1, which must be allocated to consumption c1 and a portfolio investment w1–c1 The portfolio will yield an uncertain wealth level w2 at the beginning of period 2, which must be divided between consumption c2 and investment w2–c2 Consumption-investment decisions must be made at the beginning of each period, until the consumer dies and his wealth is distributed among his heirs The consumer's objective is to maximize the expected utility of lifetime consumption This chapter reviews uncertainty models of the multiperiod consumption-investment problem considered by Edmund Phelps, Nils Hakansson, and Jan Mossin and presents a more general multiperiod consumption-investment model but one that nevertheless leads to interesting hypotheses about observable aspects of consumer behavior The main result is the proposition that if the consumer is risk averse, that is, the utility function for lifetime consumption is strictly concave and markets for consumption goods and portfolio assets are perfect, 3 then the consumer's observable behavior in the market in any period is indistinguishable from that of a risk averse expected utility maximizer who has a one-period horizon

485 citations


Book ChapterDOI
TL;DR: In this paper, a sequential model of the individual's economic decision problem under risk is developed, and optimal consumption, investment, and borrowing-lending strategies are obtained in closed form for a class of utility functions.
Abstract: This paper develops a sequential model of the individual's economic decision problem under risk. On the basis of this model, optimal consumption, investment, and borrowing-lending strategies are obtained in closed form for a class of utility functions. For a subset of this class the optimal consumption strategy satisfies the permanent income hypothesis precisely. The optimal investment strategies have the property that the optimal mix of risky investments is independent of wealth, noncapital income, age, and impatience to consume. Necessary and sufficient conditions for long-run capital growth are also given.

393 citations


Journal ArticleDOI
TL;DR: In this article, the authors discuss the economic equilibrium with costly marketing and formalize the idea of transaction cost, which is an essential step in modeling monetary behavior of the economy and formalizing the transaction cost is used to reduce real resource requirements of the trading process.

156 citations


Journal ArticleDOI
TL;DR: In this article, the authors study a standard n-commodity model where equilibrium positions are characterized by specified inequalities between society's marginal rates of transformation in production and a single consumer's marginal rate of substitution in consumption; these inequalities are exemplified by, but not limited to, excise taxes and subsidies.
Abstract: We study a standard n-commodity model in which equilibrium positions are characterized by specified inequalities between society's marginal rates of transformation in production and a single consumer's marginal rates of substitution in consumption; these inequalities are exemplified by, but not limited to, excise taxes and subsidies. We explore circumstances under which certain increases in these "taxes" and "subsidies" can be said to decrease welfare. In order to do so, we look for conditions under which the equilibrium consumption vector is well defined by a specification of the taxes and subsidies, and find that the conditions required are stringent. Among our conclusions is the proposition that the validity of consumers' surplus measures for analyzing such problems may depend on assumptions that are more strict than their users have realized.

111 citations





Journal ArticleDOI
01 Feb 1970-Kyklos
TL;DR: In this article, the authors investigated the efficiency aspects of subsidy devices and showed that in a simple two-person model, lumpsum transfers of a good whose consumption yields external benefits will lead to neither optimality nor equilibrium, but a price cut, an alteration of exchange ratios, can produce an optimal equilibrium.
Abstract: SUMMARY There are numerous devices which are used to affect individuals' consumptions of various goods—direct distributions of goods, vouchers, price-reductions, etc. This paper investigates the efficiency aspects of these devices. In a simple two-person model, it is shown that lumpsum transfers of a good whose consumption yields external benefits will lead to neither optimality nor equilibrium. But a price cut, an alteration of exchange ratios, can produce an optimal equilibrium. In a model in which there is one subsidy recipient and many benefactors, it is shown that in certain cases a transfer of the externality-generating good, of an equal amount of money, or of some other good will all produce the same effect in the individual's consumption of the externality-generating good. A price reduction on an ‘all-or-nothing’ subsidy scheme, in which the individual must pay a given amount for a given quality of the good or receive none at all, will lead to optimality. When there are many givers and many receivers, an efficient subsidy device will in general not be one which faces all individuals with the same conditions. Price reductions, all-or-nothing schemes, and legal standards are shown to be alternate ways of reaching optimality, differing mainly in the way in which they affect the distribution of real income.

50 citations




Journal ArticleDOI
01 Mar 1970
TL;DR: In this article, the authors argue that the movement of what has traditionally been termed "migrant labor" in and between developing countries can be important for development in a number of ways thus far given little or no atteniton in the literature.
Abstract: This discussion argues the following: that the movement of what has traditionally been termed "migrant labor" in and between developing countries can be important for development in a number of ways thus far given little or no atteniton in the literature; and the impact of labor movements varies greatly from country to country and area to area depending particularly on the length of absence of the laborer from his/her home area and on the similarities and differences between the economic and physical environments of the migrants home and the area or areas in which he/she works while away from home. The net effect on economic development of a particular movement of economically productive persons may be analyzed in terms of changes in production productivity and consumption in both the labor supplying (home) and the labor receiving (host) areas. Such changes may come about through variations in the relative supplies of productive factors in the volume of consumer demand in the home and host areas and through transfers of attitudes institutions and techniques of production. Movements of economically productive persons may help to induce changes in economic activities other than those in which they are directly employed. Both the direction and the magnitude of these effects are likely to vary from 1 pattern of migration to another. There appears to be an implicit assumption in the literature that whether or not the net economic effect is positive most of the impact on the supplying economy is negative. The economic impact of migrants is very much a function of the economic characteristics of the supplying economy and the host economies with which it is linked by migrants. Areas supplying migrants are likely to benefit from net additions to both human and physical capital from a widening of consumption expectations and horizons and from technological change especially after migrants return from the host economy. Whether or not these beneficial effects will be outweighed by decreases in output depends primarily on the extent to which migrants absences are coordinated with the structure and time pattern of employment opportunities in the home and host areas. Areas receiving migrants are most likely to benefit from low wages development of unused resources and the spread of new technology. Additionally they may gain entrepreneurs and additions to physical capital especially if some migrants settle permanently. Migrants may contribute to development problems by increasing inflationary pressures or by adding to social and political tensions but their presence may serve to stimulate production and investment in both the private and the public sectors.

Journal ArticleDOI
TL;DR: The analysis is on all fours with its converse as discussed by the authors, and the consequences of governmental or collective organization are readily demonstrable when this relatively straightforward step is taken, but rarely do we find the analysis turned on its head, so to speak, toward prediction of the effects generated by governmental organization of the supply of goods and services that are largely if not wholly "private", that is, fully divisible into separate and distinguishable units of consumption.
Abstract: Economists have devoted considerable attention to the effects generated by market or private organization of the supply of goods and services that embody collective-consumption characteristics. Analysis of these effects makes up much of the content of modern public-goods theory. Rarely do we find the analysis turned on its head, so to speak, toward prediction of the effects generated by governmental organization of the supply of goods and services that are largely if not wholly "private," that is, fully divisible into separate and distinguishable units of consumption. When this relatively straightforward step is taken, the consequences of governmental or collective organization are readily demonstrable. The analysis is on all fours with its converse.

01 Jan 1970
TL;DR: In this article, an econometric approach to estimate prices and quantity conversion factors from household expenditure data, using data from rural Ethiopia to illustrate the approach, is provided, and the conclusions about poverty changes over time are significantly affected by using alternative strategies to convert local units and to value subsistence consumption.
Abstract: For many research problems in developing countries, some information on prices faced by households is required, for example if subsistence consumption is a substantial part of consumption. These prices are not readily available from household surveys, and at times they are not easily observed, for example if markets are thin and systematic price information can only be observed from markets some distance away from communities. Furthermore, quantities consumed and produced are often in local units presenting further problems for the analysis. We provide an econometric approach to estimate prices and quantity conversion factors from household expenditure data, using data from rural Ethiopia to illustrate the approach. In an application, we show that the conclusions about poverty changes over time are significantly affected by using alternative strategies to convert local units and to value subsistence consumption. We find in our case that mean unit values result in the overestimation of prices due to outliers and other sources of measurement error. Exogenous consumer price sources, often collected at larger markets outside the village, tend to give slightly lower values than our estimates.

Journal ArticleDOI
TL;DR: In this paper, it was shown that the welfare conditions for a public good are a special case of the welfare condition for a consumption externality, where a good is defined as a good "which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual consumption of that good" (Samuelson [4]).
Abstract: In two recent investigations into the economic problems of externality the authors have noted in passing that the welfare or optimality conditions in the case of a consumption externality seemed identical with the welfare conditions in the case of public goods as originally stated by Samuelson.1 The purpose of this paper is to demonstrate that the welfare conditions for a public good are a special case of the welfare conditions for a consumption externality where a public good is defined as a good ‘which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good’ (Samuelson [4]). Since the welfare conditions for a private good are also a special case of the welfare conditions for a consumption externality, it follows that we have a range of externality with the pure private good and the pure public good as polar cases.




15 Jun 1970
TL;DR: In this paper, a modification of the standard theory of consumer demand was developed and tested, which yields implications concerning the consumer's allocation of time to consumption and income producing activities, without treating leisure as a good or work as a bad.
Abstract: : The purpose of the study is to develop and test a modification of the standard theory of consumer demand that yields implications concerning the consumer's allocation of time to consumption and income producing activities. Unlike the demand for leisure model, the theory does not treat leisure as a good or work as a bad. The consumer's time does not enter his utility function, only the quantities of goods consumed do. The consumer's time enters his budget constraint only. At a sufficiently high level of income, time may also become an additional constraint independent of the budget constraint. The principal hypothesis of the theory is that each good has a money price and a foregone earnings cost. (Author)

01 Jan 1970
TL;DR: Some processed baby foods were lethal to hypertension-prone rats and this added NaCl content may contribute to the later development of hypertension in genetically predisposed individuals.
Abstract: Summary Some processed baby foods were lethal to hypertension-prone rats. Among 25 rats from a genetically hypertension-prone strain fed solely on such baby foods, all developed significant hypertension (averaging 180–190 mm Hg in the last 3 months of observation), 12 died, and 2 others became seriously ill during the 8 months of study. In contrast, the IS control rats maintained on a low sodium chow were all alive and their average pressure at 8 months was 141.4 mm Hg. Considerable evidence suggests that the difference in response of test and control groups was due to the high NaCl content added to the processed baby foods. This added NaCl is unnecessary for the health of infants. It may contribute to the later development of hypertension in genetically predisposed individuals.


Journal ArticleDOI
TL;DR: In this paper, the authors present a conceptual basis for an alternative to the traditional method of analyzing the distribution of income, which is based on the concept of public consumption, instead of income distribution.
Abstract: In both political discussions and scientific literature the income distribution has come to occupy a central position for the consideration of social welfare and economic equalization. It has been assumed that an individual's income reflects his consumption opportunities and therefore his standard of living or economic welfare. The thesis of this paper is, however, that there are reasons for being quite pessimistic about drawing meaningful conclusions from income distribution data. As illustrated by the use of Swedish data, the distribution of income gives an extremely incomplete picture of the distribution of consumption for a wide variety of definitional and statistical reasons. The distribution of consumption, furthermore, cannot be transformed into a corresponding distribution of welfare, since there is no well defined concept of welfare. The treatment of public consumption in empirical analysis of the distribution of welfare also raises problems. The paper closes with the presentation of the conceptual basis for an alternative to the traditional method of analyzing the distribution of income.

Journal ArticleDOI
TL;DR: In this paper, the authors used a set of cross-sectional data on the personal characteristics and economic behavior of modern consumer durables in Taiwan to explore the role of such consumption in a developing society.
Abstract: There has been a continuing controversy among economists about the impact consumption aspirations in developing countries have on development efforts. Although some recognition is given to the need for incentives, it is usually assumed that increases in consumption can be achieved only at the expense of saving, with a resulting decrease in resources available for investment. The desire for modern goods fostered by the demonstration effect is seen as particularly troublesome. Some economists, however, feel that not enough weight is attached to the positive effects which consumption aspirations can have on work effort. For example, Smithies states that development planners place too much stress on capital accumulation, and not enough emphasis on providing incentives which can motivate workers to exercise greater ingenuity and to put forth a greater work effort. As he says, "Labor may expend more effort or exercise more ingenuity simply from a spontaneous desire to be economically effective. A more likely possibility is that a man will do more work, depending on the additional goods he can get in return for his increased effort."' This controversy has been restricted mainly to theoretical speculation, because of the lack of empirical data. Data on consumption in developing countries generally have been limited to aggregate data, which do not permit an analysis of the relationship of modern consumption to individual behavior. The present study has utilized a unique set of crosssectional data on the personal characteristics and economic behavior of modern consumer durables2 in Taiwan to explore the role of such consumption in a developing society.3


Journal ArticleDOI
TL;DR: In this paper, a set of coefficients is derived which can be used to project West Pakistan's private consumption in the medium and longer term, for ten urban and rural income groups separately, income, price and cross elasticities of demand have been calculated.
Abstract: In this paper, a set of coefficients is derived which can be used to project West Pakistan's private consumption in the medium and longer term. For ten urban and rural income groups separately, income, price and cross elasticities of demand have been calculated. Thus, the methodology permits to trace the influence of changes in incomes, income distribution and prices on consumption. 1.2 Most development models concern themselves with aggregate income effects only, and assume constant income distribution and prices. This may be warranted as long as no structural shifts occur. Insofar as development implies structural shifts, there may be an inconsistency. Apart from this, the attainment of a more equitable income distribution is more and more being emphasized as an independent goal of socio-economic planning. Changes in distribution are more often than not at least partly the result of changes in relative prices. Obviously, then, both incomes and prices must be included in the planning framework if anything is to be said about the effect of planned development on equity.

Journal ArticleDOI
TL;DR: In this article, a specification of tax liabilities and consumption behavior is proposed to represent allocation of income between consumption and savings in multi-period linear programming models, while accounting for the effects of income tax.
Abstract: The proper specification of tax liabilities and consumption behavior is a significant problem in designing models for studying firm growth. A specification is suggested to represent allocation of income between consumption and savings in multiperiod linear programming models, while accounting for the effects of income tax. It is proposed as a method that conserves row space while providing flexibility in representing actual tax liabilities and actual consumption behavior in terms relevant for the study of growth alternatives and constraints.

Journal ArticleDOI
TL;DR: In this article, a test of whether or not permanent consumption and transitory income are correlated is presented, and it is shown that a significant positive correlation exists between these variables as well as between permanent and transient income.
Abstract: After reviewing Friedman's time series model, this article presents a test of whether or not permanent consumption and transitory income are correlated. We conclude utilizing essentially the same data series and the same measure of permanent income as Friedman that a significant positive correlation exists between these variables as well as between permanent and transitory income.


01 Jan 1970
TL;DR: In this article, the authors developed a robust and comprehensive tool to evaluate the effect on household welfare of different agricultural policies in Tanzania and food price changes, using a two-stage estimation strategy: the shadow price of labour is first estimated and then used to estimate production and demand systems as well as labour market functions.
Abstract: Exogenous shocks to farmers' consumption, production and labour market decisions are rarely considered accurately. For farm households, under labour market imperfections, such decisions are often interlinked. This calls for non-separable agricultural household models. According to this framework, second-order (or behavioural) effects include a direct (i.e., supply or demand reactions due to an exogenous shock) and an indirect (i.e., supply or demand adjustments to the endogenous variations in the shadow wage generated by the exogenous shock) component. Under large price changes or following structural interventions, such as those concerning land redistribution or mechanisation practices, neglecting such second-order effects on consumption and production can bias the final impact on household welfare. The main objective of this study is thus to develop a robust and comprehensive tool to evaluate the effect on household welfare of different agricultural policies in Tanzania and food price changes. A two-stage estimation strategy is adopted: the shadow price of labour is first estimated and then used to estimate production and demand systems as well as labour market functions. These models are subsequently used to simulate the effect on household welfare of a hypothetical 40% increase in the price of cereals and other crops and a hypothetical 10% increase in the hectares of arable land and in the use of ox-ploughs. The results are finally compared with the case in which a separable model is adopted.

01 Jan 1970
TL;DR: In this paper, simple time series regressions for 37 low-income African countries during 1960-2004 suggest that government consumption is highly procyclical, with consumption responding more than proportionately to fluctuations in output in many cases.
Abstract: Simple time series regressions for 37 low-income African countries during 1960–2004 suggest that government consumption is highly procyclical, with consumption responding more than proportionately to fluctuations in output in many cases. The results from a cross-country specification suggest that government consumption is more procyclical in those African countries that are more reliant on foreign aid inflows and that are less corrupt, and that it is less procyclical in countries with unequal income distribution and that are more democratic. These results contrast with those from recent research using data sets that comprise a more diverse groups of countries in terms of geography and income levels.