Showing papers on "Consumption (economics) published in 1972"

Prices for Individual Consumption, Quantity Indicators for Collective Consumption

Abstract: In the classical situation discussed by microeconomic theory, commodities are consumed individually either by firms or by households. Prices are then considered as the main vehicle of information for a proper allocation of resources. The " public good problem " has turned our attention towards the case in which some commodities are consumed collectively. Following P. A. Samuelson,3 economists have realized that, for the provision of public goods, the price system cannot work in the same way as it is supposed to operate for the distribution of private goods. The distinction between the two types of consumption is clearly apparent if we consider how information on individual needs and wants is actually conveyed within the social process ruling the allocation of resources. On the one hand for private consumption, households and firms usually express demands at more or less given prices, these demands being directly addressed to the various markets. On the other hand when the budget of a public body is being discussed, the individual agents or their representatives must exhibit in some way their " priorities " among projects. Faced with a proposed programme for the institution, they must suggest whichever changes they would favour: more for schools and less for highways, or more for both at the cost of higher taxes ... and so on. By such proposals individuals or their representatives tend to reveal their marginal rates of substitution with respect to the budget under discussion. Hence, households and firms manifest their wants by quantitative demands in the case of private consumption, by marginal rates of substitution in the case of collective consumption. In order to formalize this distinction, to understand it better and to study its implications we must obviously not limit ourselves to equilibrium analysis. With respect to an equilibrium programme, and its associated prices and taxation rates, the distinction practically vanishes: both for private and for public consumption individuals accept the prices and tax rates as measuring their marginal rates of substitution and do not demand any quantitative change. Our concern must be the process by which an equilibrium, or " optimum "5, programme is or could be found. Our theoretical investigation may then proceed from either of two approaches. We may aim at being " positive ", i.e. at describing the actual social decision process. Or we may pretend to be normative, i.e. to find a,process with interesting properties. I shall here adopt the second approach, because it is fundamentally much simpler. But I shall look

Avarice, Altruism, and Second Party Preferences

Abstract: The shape of a preference function when one individual's utility depends not only upon his own rate of consumption, but also upon his neighbor's rate of consumption — second party preferences, 2. — Definitions of avaricious, altruistic, and egalitarian sentiment, 4. — Division of a fixed supply of commodities between two individuals, 6. — The maximum mazimorum of satisfaction when any move from an equilibrium position leaves all parties worse off, 12. — Some implications for welfare policies and programs, 15.

Comsumer behavior, transport mode choice and value of time: some micro-economic models

Abstract: The report discusses to what extent micro-economic models of consumer behaviour can contribute to the understanding of the fundamental nature of the travel decisions of individuals in the consumptive sphere. Travel requires consumption of goods (and/or services) and of time. Therefore the models of this paper take explicity into account the problem of the allocation of travel time among the various activities which enter into the utility function of the consumer. The consumer is considered as a production unit of consumption activities which require two types of imputs: goods (or services) and time. Hence he maximizes his utility function under two constraints budget constraint and a time constraint. A fundamental innovation of the models of this paper is that they make a distinction between the utility of time as an input in the production of a given consumption activity and the dissatisfaction which results from the circumstances under which the time required to produce that given activity must be spent. Although the models developed may provide information on the three main travel decisions of individuals (trip production trip distribution and modal choice), emphasis will be placed on information about the nature of modal choice and its determinants. Therefore, an important objective of this paper is to determine the possible contribution of micro-economic theory to the value of travel time savings. /TRRL/

Health services in Cuba. An initial appraisal.

Abstract: The development of the Cuban health services during the last decade reflects a commitment to minimize the striking inequalities in the availability and consumption of health resources that previously existed between social classes, between cities and rural areas, and between regions. This process of equalization has been characterized by a centralization of inpatient services, a decentralization of ambulatory services, and an increase in the use and production of paramedical and auxiliary personnel within the health-services system. The health services today are structured according to regional models aimed at providing integrated care to the whole population, with integration of preventive with curative services, social with medical services, and environmental with personal health services. The universal coverage of the population has been achieved by redistribution of old and new resources and a heavy investment in the health sector, with great priority given to the rural and poor areas and reg...

The Optimal Full-Employment Surplus

Abstract: In this paper we find the monetary-fiscal mix that will lead to the Pareto-optimal amount of saving and investment. Because knowledge and foresight are imperfect, the monetary-fiscal policy mix affects consumption and the equilibrium interest rate, at full employment without inflation. Optimal policy balances different offsetting failures of household foresight against each other to approximate the results of perfect foresight. It also offsets the distortion in aggregate saving and investment due to the taxation of income from capital.

Token Economies and Experimental Economics

Abstract: The purpose of this note is to extend the discussion begun by Castro and Weingarten (1970) in this Journal on the application of experimental techniques to the study of economic behavior. I report the development of special economic systems for human populations, called token economies, that provide potential laboratories for economic experiments.' The results of experiments already conducted in these economies show that changes in wages and prices on job selection and consumption patterns are, in general, in agreement with economic theory. Further, the application of designed experiments to token economies avoids most of the problems currently encountered in dealing with human subjects. A brief description of token economies and summaries of several experiments of particular interest to economists follow. I conclude with a discussion of the advantages and potentialities of designed experimentation in token economies.

A Mean Demand Function and Individual Demand Functions Confronted with the Weak and the Strong Axioms of Revealed Preference: An Empirical Test

Abstract: This empirical investigation is based on consumers' reports about their weekly purchases of everyday commodities. From the data we have corresponding price and consumption vectors of a number of individual demand functions and one mean demand function. By comparison with simulated demand functions, the correspondence between the price and consumption vectors is shown to be systematic and in agreement with the axioms of revealed preference.

Estimation of Demand Parameters under Consumer Budgeting: An Application to Argentina

Abstract: This study assumes that consumer expenditures occur in a stepwise fashion in which income is fist allocated to budget categories and then to optimum quantities within each category. With this assumption, a model was developed to estimate the price and icome elasticities of demand of all items in one budget category—like food—and the cross-price elasticities of these items with all others. The approach permits one to specify the changes in expenditure levels on budget categories from cross-section information and the flexibility of money. The model was empirically applied to Argentine consumption data.

Wealth Effects on Consumption in a Modified Life-Cycle Model

Abstract: In their original contributions [3] and [4], Modigliani and Brumberg showed that the maximization of an homogeneous inter-temporal utility function subject to a life-span budget constraint leads to a proportional relationship between consumption and permanent income. The exclusion of wealth from the utility function, justifiable in the absence of uncertainty, implies that the life time asset/liability plan is generated by divergences between the time profiles of human income and optimal consumption, the former being assumed outside the consumer's control. Given the standard \" hill-shaped \" time profile of human earnings, this will tend to lead to borrowing in the early years of productive activity, the repayment of these debts and further asset accumulation in middle age, succeeded by gradual dissaving through retirement until death. The close correspondence to reality of this aspect of the model is one of the grounds on which Modigliani and Brumberg justify their neglect of the problems associated with uncertainty. It is the purpose of this paper to suggest that the role of wealth has been underestimated by ignoring uncertainty and to propose and test empirically a model which allows the wealth decision an independent part in the determination of consumption behaviour. In the next section, the model is presented as it concerns the individual; an analysis is made of wealth effects under perfect certainty and the considerable modifications needed in order to deal with uncertainty are discussed. In Section III, a macroeconomic version of the model is derived and tested against UK quarterly data. This section concludes with a discussion of the results and a numerical example designed to illustrate the magnitude of reactions to a change in stock market prices. Finally, in Section IV, the behaviour of the model in a steady growth environment is demonstrated and the steady growth savings ratio is tabulated as a function of the rate of growth of real income, the rate of inflation, and the rate of revaluation of wealth.

Consumption Sharing and Non-Exclusion Rules'

Abstract: The theory of public goods, which emphasizes various degrees of sharing in the consumption of common outputs, more or less implicitly assumes that individuals are indifferent as to the persons with whom they combine in sharing arrangements. Under this assumption the theory of public goods has been applied to various problems of governmental and private organization (e.g. fiscal federalism and the theory of clubs) which involve determination of the size of the group over which the common output will be shared. Buchanan in particular has pointed out the potential restrictiveness of this assumption and emphasized that it may be appropriate to attempt to incorporate the element of personal selectivity or discrimination into the analysis of public-goods sharing arrangements.2 This paper is an attempt to incorporate the element of discrimination into an economic model of consumption sharing-basically Buchanan's theory of clubs. The justification for this attempt is that discrimination is a more realistic assumption about human behaviour for a theory of public goods from which to draw implications for public policy.3 A good example is presented by non-discrimination laws applying to publicly provided goods which must be shared in consumption (e.g. public education). The application of some of these laws represents an attempt to determine the composition of sharing groups for particular public outputs.4 In this paper an attempt is made to develop a model of consumption sharing that includes a discrimination variable, and it is used to discuss 1 I am grateful to James M. Buchanan for originally suggesting the importance of the problems addressed in this paper and for much critical assistance with earlier drafts. Discussions with Thomas D. Willett were also very helpful in improving the paper. Specific acknowledgment should also be made of Ryan C.

On the Validity of NSS Estimates of Consumption Expenditure

Abstract: We propose to examine here the NSS estimate of consumption expenditure as a measure of the aggregate private consumption expenditure. Private consumption expenditure, today, is of the order of 80 per cent of the net national product (NNP) at market prices. The estimate of NNP in India does not depend on survey consumption data, and is based largely on information on output. A substantial part of the aggregate NNP in a particular year is based on projections and surmises and does not depend on direct information pertaining to the year. Consequently, corroboration of a sizable part of it by a completely independent survey estimate will be welcome provided we are satisfied about its validity and accuracy.

Satisfaction and Education: A New Approach to Understanding Consumption Patterns

Abstract: This study estimated the effect of education on the consumption patterns of urban families. This was done by determining education elasticities, using linear multiple regression equations with logarithmic transformations for appropriate independent variables, for total family living expenditures and for 19 different categories of expenditures for a representative group of families. The source of data was the Bureau of Labor Statistics' 1960-61 Survey of Consumer Expenditures General Purpose Tape. Expenditure categories were classified into two groups based on the relative satisfaction derived from the consumption of the goods: (1) future-oriented-goods that create relatively more satisfaction in the future than in the present; and (2) present-oriented—goods that create relatively more satisfaction in the present than in the future. The general hypothesis of this study is that the education of the father will affect the expenditures of families differently for various categories of goods and that these expenditures will vary on the basis of whether the goods are present- or future-oriented in satisfying power. The results of this study give indication that education of the father does influence the expenditures of families, especially those for “future” goods.

Consumption Functions with Shifting Parameters Due to Socio-Economic Factors

Abstract: CONSUMERS' expenditure forms a major component of the Gross National Expenditure and the parameters of this function play a crucial role in the mechanism of income generation in a macro-model. Because of their importance, a considerable amount of care and attention should be devoted to the estimation of these parameters and their probable movement. This consideration becomes especially important in mediumand long-range forecasting because over a long-run horizon the consumer expenditure parameters may be strongly influenced by socio-economic factors such as female participation in the labour force, education level of the population, urbanization, etc. In this paper we make a beginning in the direction of estimating parameters of the consumption function which are shifting over time due to these socio-economic factors. The importance of taking into account the shifting parameters in a macro-equation can also be emphasized from another point of view. It is becoming increasingly clear that macroeconomic analysis and policy will be seriously inadequate in a medium-run horizon unless attention is paid to changes in the composition of aggregative units. One line of attack is, of course, to have disaggregative models. However, quite often the detailed time-series data are not available on all the variables concerned. Even when the data are available, they are somewhat unreliable at a disaggregate level and in statistical estimation the ratio of noise to signal tends to be high in such disaggregate equations. Moreover, there are often some overall macro-constraints which are difficult to take into account in disaggregate models. It is, therefore, desirable as a supplement (if not as an alternative) to the disaggregated models, to have a macro-equation capture the compositional effects as far as possible. Our DaDer is one example of an attempt to capture the influence of changing population composition in a macro-equation, by introducing shifting parameters. For purposes of estimating these shifting parameters, we make combined use of cross-section and time-series data. The lagged reaction path of consumption due to income and price changes is also considered, and we use the Almon technique (1965) for this purpose.

The Role of Interest Rates and Inflation in the Consumption Function

Abstract: MOST OF THE ANALYSIS of the effects of interest rate changes on consumption has been concerned with (1) the relative importance of income and substitution effects in determining how households will allocate their resources over time, and (2) the substitution effect at a moment of time determining the demands for durable versus nondurable consumption goods. But two other types of interest rate effects on consumption-effects that have received little attention in the literature-may be of some importance and are the subject of this report. The rate of inflation enters the analysis because of the wedge it drives between the nominal and real rates of interest. One of the effects to be considered is a consequence of the fact that the real rate of interest helps determine the services yielded by the stock of consumer durables. Following a common practice in econometric work on consumption, the services of durables are included in consumption and purchases of consumer durables are excluded. Services of durables must also be added to disposable income. Since the value of such services cannot be ascertained from market transactions, it must be imputed. The stock of consumer durables is first estimated, and then multiplied by a depreciation rate and a net rate of return to obtain the gross yield on the stock. Since

On the determination of economies of scale in household consumption

Abstract: CROSS-SECTION STUDIES on consumer behavior tacitly assume that any two households with equal per capita/per unit2 income within a homogeneous group would display similar consumption pattern. One may, however, see in practice that large households are, generally, able to enjoy higher standard of living as compared to small ones, even though both may have identical per capita/per unit incomes. Therefore, a simple and straightforward Engel curve analysis relating per capita/per unit expenditure on any specific item of consumption with per capita/per unit income may not always yield satisfactory results. This clearly necessitates a modification in the formulation of the Engel function so that it becomes possible to account for this kind of a priori information in the Engel curve analysis. Consumer behavior of large households may be more economical in respect to specific items as well as all items of consumption taken together. Therefore, attempting to incorporate such possibilities in the Engel curve analysis, Prais and Houthakker [4] introduced the concepts of 'specific' and 'income' economies of scale in household consumption. According to 'specific' economies/diseconomnies of scale, equiproportionate change in income and household size (leaving per capita/per unit income unaltered) results in less/more than proportionate change in per capita/per unit expenditure on any specific item. It is common knowledge that not all items of the household budget will reveal economies of scale in their consumption. There may as well be diseconomies of scale in the consumption of some items of the budget, which may offset, at least partly, the effects of economies of scale in the consumption of other items. In consequence, there would'be an 'overall effect' of such economies and diseconomies of scale on household consumption. This may be termed as 'income' economies/diseconomies of scale according as the degree of specific economies is greater/smaller than specific diseconomies of scale. Accordingly, a household is said to be enjoying income economies/diseconomies of scale, if it is able to enjoy higher/lower standard of living than a relatively smaller household, with the same level of per capita/per unit income. The basic problem involved in this analysis is the determination of 'specific'

Income Expectations and the Consumption of Graduate Students

Abstract: The consumption theories of Modigliani and Brumberg and of Friedman emphasize hypothetical probability distribution of ex ante income. However, empirical tests of these theories have been restricted almost exclusively to past values. WVe utilize data from two NSF surveys to relate graduate-student consumption patterns to expected future income, current income, and past income experience. We find that students planning to work in employment sectors which are higher paying (such as universities) and in higher-paying fields (such as geophysics) consume more than those planning to work in lower-paying sectors (such as junior colleges) or fields (such as geography).

Projected consumption patterns for a stationary population.

Abstract: Recently economists have demonstrated a renewed interest in the population problems of a mature society. This revival of interest has been sparked by the general recognition of the relationship between population growth and environmental problems and has led to general acceptance of the proposition that ‘ ... a zero rate of population growth is the only equilibrium rate that can be sustained’.1 Consequently the literature produced during the discipline's last period of similar concern, a period running from the late 1920's through the 1940's, needs re-examination. At that time economists were primarily occupied with the implications of a declining rate of population growth and most anticipated the arrival of a stationary population within the foreseeable future. For most of the economists of this earlier period the onset of a stationary or declining population was fraught with dangers for mature capitalism.