Showing papers on "Consumption (economics) published in 1978"
TL;DR: In this article, the authors show that no variable apart from current consumption should be of any value in predicting future consumption, except real disposable income, which has no predictive power for consumption, but rejected for an index of stock prices.
Abstract: Optimization of the part of consumers is shown to imply that the marginal utility of consumption evolves according to a random walk with trend. To a reasonable approximation, consumption itself should evolve in the same way. In particular, no variable apart from current consumption should be of any value in predicting future consumption. This implication is tested with time-series data for the postwar United States. It is confirmed for real disposable income, which has no predictive power for consumption, but rejected for an index of stock prices. The paper concludes that the evidence supports a modified version of the life cycle--permanent income hypothesis.
2,721 citations
TL;DR: In this article, the Black-Scholes equation for options on aggregate consumption has been used to derive the prices of primitive securities from the price of call options on aggregated consumption.
Abstract: The time-state preference approach to general equilibrium in an economy as developed by Arrow (1964) and Debreu (1959) is one of the most general frameworks available for the theory of finance under uncertainty. Given the prices of primitive securities (a security that pays $1.00 contingent upon a given state of the world at a given date, and zero otherwise, is a primitive This paper implements the time-state preference model in a multiperiod economy, deriving the prices of primitive securities from the prices of call options on aggregate consumption. These prices permit an equilibrium valuation of assets with uncertain payoffs at many future dates. Furthermore, for any given portfolio, the price of a $1.00 claim received at a future date, if the portfolio's value is between two given levels at that time, is derived explicitly from a second partial derivative of its calloption pricing function. An intertemporal capital asset pricing model is derived for payoffs that are jointly lognormally distributed with aggregate consumption. It is shown that using the Black-Scholes equation for options on aggregate consumption implies that individuals' preferences aggregate to isoelastic utility.
1,630 citations
TL;DR: The theory … depends upon the validity of a single hypothesis, viz.: that the utility index is a function of relative rather than absolute consumption expenditure.
Abstract: I. Introduction, 589. — II. An optimal negative income tax model, 591. — III. The maximin criterion, 594. — IV. A utilitarian social objective, 597. — V. Conclusion, 598. Our theory … depends upon the validity of a single hypothesis, viz.: that the utility index is a function of relative rather than absolute consumption expenditure. — J. Duesenberry Income, Saving and the Theory of Consumer Behavior
397 citations
TL;DR: In this paper, a variety of functional forms, estimation methods, and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving and the implications of this result for the analysis of the efficiency and equity of the current U.S. tax treatment of income from capital are explored.
Abstract: This study presents new estimates of consumption functions based on aggregate U.S. time-series data. The results are striking: a variety of functional forms, estimation methods, and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving. The implications of this result for the analysis of the efficiency and equity of the current U.S. tax treatment of income from capital are explored. In reducing the real net rate of return, current tax treatment significantly retards capital accumulation. This in turn causes an enormous waste of resources and redistributes a substantial fraction of gross income from labor to capital. Rough estimates of the loss welfare exceed 50 billion per year (a present value close to 1 trillion!) and of the redistribution from labor to capital exceed one-seventh of the capital's share of gross Income.It also suggests that the usual calculations of tax burdens by income class substantially overestimate both the ...
324 citations
279 citations
TL;DR: In this paper, the authors examined the premises from which traditional theory derived the assertion that aggregate demand would adjust to productive capacity and found that these premises lie ultimately in the conception of capital as a "factor of production" em ployable in increasing proportion to other factors as the rate of interest falls.
Abstract: In Part I we looked for the premises from which traditional theory derived the assertion that aggregate demand would adjust to productive capacity. These premises were found to lie ultimately in the conception of capital as a 'factor of production' em ployable in increasing proportion to other factors as the rate of interest falls—the basis, as we argued, of the idea of a demand schedule for 'saving' determining the rate of interest in conjunction with the supply schedule of full employment saving. The deficiencies of that conception of capital led us to the conclusion that, contrary to what is often argued, an analysis conducted in 'real' and 'static' terms provides no basis for the belief that investment decisions can, in the long period, adjust to decisions to save. In this second Part of the paper, the problem will be approached in terms of the 'monetary' analysis of Keynes' General Theory and the subsequent controversy. In section 1, we shall use Wicksell's theory of the price level as an example of how traditional theories would link their 'real' analysis of distribution with their analysis of the money rate of interest. We shall then argue, in section 2, that Keynes's different conclusions
242 citations
TL;DR: The authors argue that many economic models should be estimated between the changes of the variables, rather than the levels of the variable of interest, and that comparisons of the levels and changes regressions can be used as a crude test of model specification.
234 citations
213 citations
TL;DR: In this article, the results of two attitudinal surveys demonstrated that homeowners' summer electricity consumption could be predicted from their energy-related attitudes and personal comfort and health concers were the best predictors of consumption.
205 citations
TL;DR: In this paper, the authors used a likelihood ratio test to test the adequacy of three joint hypotheses: Friedman's model, rational expectations, and some arbitrary conditions on the disturbance process in the consumption function.
Abstract: Estimates of a rational expectations version of Friedman's time-series consumption model are obtained by imposing the pertinent restrictions across the stochastic processes for consumption and income. A likelihood ratio test is used to test the adequacy of three joint hypotheses: namely, Friedman's model, rational expectations, and some arbitrary conditions on the disturbance process in the consumption function. The paper treats both the cases in which income is econometrically exogenous with respect to consumption and those in which it is not. The macroeconomics of this exogeneity condition are briefly discussed.
180 citations
TL;DR: In this article, the complex interrelationships of price policy and income distribution are analyzed, beginning with the simple effects of changes in food prices as they are reflected in consumer-budget data and consumption patterns and the effects on producers of different income levels.
Abstract: The complex interrelationships of price policy and income distribution are analyzed, beginning with the simple effects of changes in food prices as they are reflected in consumer-budget data and consumption patterns and the effects on producers of different income levels. The analysis progresses to a more complex study of the effect on agricultural technology and production and on employment in non-agricultural areas. The impact is shown to be greatest on low-income groups, whose economic condition also has the greatest impact on food demand. Secondary impacts on employment and income of low-income groups also result from changes in the real income of high-income consumers as prices change. On the basis of this analysis, the author suggests food-pricing policies that will encourage technological change in agriculture and employment growth in industry.
Posted Content•
TL;DR: The authors developed a theory that clarified the interactions between trade in assets and trade in goods and services, and this theory should also help in the understanding of the effects of capital-market policies on trade.
Abstract: Book delves with the puzzle that assets play important role in the theory of international finance but hardly any any role in the theory of international trade. Where this dichotomy comes from? Main feature is that trade in assets may interact in an important ways with trade in goods and services. The book develops a theory that clarified these interactions. It should also help in the understanding of the effects of capital-market policies on trade in goods and assets.
TL;DR: In this paper, a model with a single, producible consumption good and two natural resource stocks, one reproducible and one existing in fixed supply, was used to study the dynamic efficiency of growth paths.
TL;DR: In this paper, a parametric preference function is specified, which makes it possible to separate and quantify three different effects, i.e., the degree of income inequality aversion, external social costs induced by the consumption of certain commodities, and implicit equivalent income scales.
TL;DR: In this article, the authors focus on the consumption-loan model of Samnuelson and show that a large increase in population growth is beneficial to economic welfare, even under the relatively benign conditions of inexhaustible resources and constant returns in production.
Abstract: In the standard neoclassical model of Solow [12], rapid population growth is harmful to economic welfare even under the relatively benign conditions of inexhaustible resources and constant returns in production. The argument is simple: an increase in the population growth rate calls for greater investment to maintain the level of capital per head and this diverts resources from consumption and capital deepening. The smaller the population growth rate the better. A quite different conclusion, however, follows from the familiar consumptionloan model of Samnuelson [10]. Here, in a world of overlapping generations, older people are more comfortably supported in old age by having many children. The larger the growth rate the better for per capita lifetime welfare. Recently, in a model that merges both neoclassical and consumption-loan assumptions, Samuelson [11] comes upon an intermediate position in which an increase in population growth influences welfare more positively than it would under the Solow mechanism alone.2 In fact, under plausible assumptions, the optimal growth rate may well exceed currently observed rates.3 Demographic policies are often justified by pointing to their economic implications. Samuelson's findings are therefore important and the issue deserves closer scrutiny. Let us ignore the Solow effect for the moment, and look more closely at the consumption-loan argument. Samuelson's analysis is embedded in a simple two-age model where the younger, working population supports the older, retired age group through "consumption" loans (transfers of consumption that will be repaid in turn by the next generation). If a sustained increase in population growth takes place, the proportion of younger, productive people expands and the old, as a result, receive higher consumption transfers - a bonus, in effect, from population growth. As long as the higher growth rate persists, this arrangement repeats itself every generation: everyone
TL;DR: In this article, the optimal consumption plan and optimal portfolio liquidity structure are discussed. But the model and optimality conditions for optimal consumption are not considered. And they do not consider the impact of portfolio liquidity on the portfolio's performance.
Abstract: I. Introduction, 279.—II. The model and optimality conditions, 281.—III. The optimal consumption plan, 284.—IV. Implications of the portfolio liquidity structure, 288.—V. Conclusions, 293.
TL;DR: In this paper, factor intensities and locational linkages of consumption patterns at different income levels are estimated for rural households in Sierra Leone, showing that low income households consume goods and services requiring less capital and foreign exchange and more labor than do higher income households.
Abstract: An understanding of consumer behavior is important for the analysis of the effects of changes in income distribution on the development process. Factor intensities and locational linkages of consumption patterns at different income levels are estimated for rural households in Sierra Leone. Results lend support to the hypothesis that low income households consume goods and services requiring less capital and foreign exchange and more labor than do higher income households. At all income levels households allocate more than 75% of consumption expenditures to goods produced in rural areas. Rural consumption linkages with urban sectors, then, are not well developed.
TL;DR: The relationship between total household energy requirements and disposable income shares three common features with that already obtained for the United States: 1) The graph of total energy vs disposable income shows some tendency to saturate, but the effect is much less marked than for direct purchase of energy alone (residential energy and auto fuel).
TL;DR: In this paper, the authors developed a model to analyze properties of demand functions for the quantity and quality of physicians' services and apply the model to study the demand for pediatric care.
Abstract: When the quality of a good varies, quantity in physical units may be a very misleading measure of total consumption. In this paper it is argued that differences in quality are a distinguishing feature of the market for physicians' services. We develop a model to analyze properties of demand functions for the quantity and quality of physicians' services and apply the model to study the demand for pediatric care--physicians' services rendered to children. The theoretical model of quantity-quality substitution provides a framework for demand analysis whenever the market for a good is distinguished by a quality component.
TL;DR: In this article, the dynamic behavior of a simple macroeconomic disequilibrium model is analyzed in which consumers' changes in money holdings constitute the dynamic link between any two periods, and it is shown that, under constant government consumption, a constant production function (no investment), and fixed prices and wages, stationary states of Keynesian unemployment are stable whereas those of repressed inflation are globally unstable.
TL;DR: In this paper, the authors consider the theory of optimal taxation in the presence of externalities when it is the uses of commodities in particular consumption processes which generate externalities, rather than the consumption of certain commodities as such, and they show that there is a case for having taxes or subsidies on related goods in addition to a tax on the externality-creating commodity itself.
Book•
01 Jan 1978
TL;DR: In this paper, an extension of Friedman's permanent income model by explicitly allowing for the distinction between pure measurement errors and transitory terms in the observed variables allows implementation of valid and direct tests of the permanent income hypothesis (PIH).
Abstract: An extension of Friedman's permanent income model by explicitly allowing for the distinction between pure measurement errors and transitory terms in the observed variables allows implementation of valid and direct tests of the permanent income hypothesis (PIH). These tests do not need the measurement error associated with each individual's income per se; rather, only the variance of these errors is necessary. The extended model also makes possible a correct comparison between the traditional and permanent income theory of consumer behavior. Neither hypothesis is supported in full. The contention of the PIH that measured consumption elasticities are downwardly biased estimates of the true permanent elasticities is supported by the data. The importance of the bias caused by measurement errors is revealed at all stages of the analysis. The large magnitude of error variances suggests that researchers should be more cautious than usual with one-shot survey data. Discussions of data and definitions used and the derivation of measurement error variances are appended. 14 references.
TL;DR: In this paper, the authors consider the production activity of cities in identifying the supply of labor and use a rich set of environmental attributes to develop new estimates of the hedonic prices for urban amenities.
Abstract: AS consumers choose among cities, they may trade off higher earnings against differences in the consumption of environmental goods. Commuter travel time, crime and air quality, the quality of educational and health facilities, each may involve unpurchased environmental goods. Decisions about -the consumption of such goods are made simultaneously with the choice of city of residence. By examining the compensating earnings differentials relative to differences in environmental goods across cities, one can estimate hedonic prices for each environmental attribute. The hedonic prices may be useful in valuing the benefit of environmental improvement, and as weights in constructing an index of the quality of life, as Tobin and Nordhaus (1972) propose. By relating the index of the quality of life to city size, something may be learned about the effect of urban growth on the quality of life. This method is a substantial improvement over the index of Liu (1975). Previous efforts to estimate these hedonic prices by Izraeli (1974) and by Hoch and Drake (1974) have been unsatisfying for several reasons. First, they model only the consumer side, while ignoring the possibility that differences in productivity may influence wage determination. Thus, they do not indicate the conditions necessary for their equations to be identified. Second, they do not include variables representative of a wide range of environmental attributes. Exclusion of important categories of environmental attributes may unduly bias the estimates. Hoch and Drake (1974), for example, focus on climate while ignoring many other environmental attributes. Third, if one includes a wide array of environmental attributes, one is confronted with a serious multicollinearity problem. Kelley (1977) takes explicit account of the demand side of the labor market in estimating hedonic prices for amenities. His analysis, however, does not account for differences in the cost of living in different cities, apparently assuming that all goods are traded in national markets. In addition, Kelley does not account for differences in labor force quality in different cities. This essay considers the production activity of cities in identifying the supply of labor. A rich set of environmental attributes is then used to develop new estimates of the hedonic prices for urban amenities.
Patent•
03 Nov 1978
TL;DR: An apparatus for monitoring and controlling the electrical power consumption of an electrical power consuming system, which apparatus measures and displays the rate and accumulated amount of total electrical consumption by the system and signals when the average daily consumption exceeds a predetermined target as established by the consumer.
Abstract: An apparatus for monitoring and controlling the electrical power consumption of an electrical power consuming system, which apparatus measures and displays the rate and accumulated amount of total electrical consumption by the system, computes the average daily consumption, and signals when the average daily consumption exceeds a predetermined target as established by the consumer. Also, the apparatus generates an output indicative of peak integrated power consumption over a predetermined time period, and an indication of the precise time of occurrence thereof, to aid the consumer in his effort to isolate primary sources of power consumption. In addition, the apparatus of the invention computes the difference between the average daily consumption and the target daily consumption, which differences are displayed in order to provide a meaningful measure of the consumer's progress in controlling the amount of useage of the particular electrical power consuming system being monitored.
TL;DR: In the 1920s, the consumption styles of American families still varied sharply by social status and residence as discussed by the authors, even with mass production, credit, the rise in real income, urbanization, and the modernization of existing farm households.
Abstract: With increases in the standard of living, similar goods and services diffused to Americans of every strata. In the past, the population was divided clearly by its purchases. This no longer is true. As the Lynds describe it, Middletown in 1890 lived on a "series of plateaus as regards standard of living," but by 1920 "the edges of the plateau have been shaved off and everyone lives on a slope from any point of which desirable things belonging to people all the way to the top are in view."' Newly available household appliances, commercial services, clothing, automobiles, and movies were transforming the living styles of Middletown's classes. However, even with these changes, in the 1920s the consumption styles of American families still varied sharply by social status and residence. Today mass production, credit, the rise in real income, urbanization, and the modernization of existing farm households all suggest that consumer goods are distributed more equally than they were fifty years ago. American families are now unified by "a consumption community"2 or a "standard package of goods."3 The consequence of this striking uniformity in consumption rather than the subtle differences will be treated here. This does not
TL;DR: In this paper, the authors study the problem of determining a non-cooperative equilibrium solution to a differential game between workers and capitalists in an economy where workers have some influence over how large a share of the total product is to be consumed by them.
Abstract: In most industrialized capitalist societies the workers, or wage earners, have some influence over how large a share of the total product is to be consumed by them. The means by which the workers can have such control can for instance be (i) control over the wage share of total income (before taxes), for instance through trade union power; (ii) influence over the ratio between wage and nonwage taxes; and (iii) control over how much of their income they consume. In the present article an economy where workers have such control is studied. Furthermore, the capitalists in this economy can control how much of the product not consumed by workers is to be invested, and how much is to be used on the capitalists' consumption. This means that even if the workers save part of their income (cf. case (iii) above), they have no guarantee that this saving will be used for investment, and not just on capitalists consuming more than their income. Using the assumptions above, the distribution of output between consumption and investment, as well as the distribution of consumption between workers and capitalists, is determined as a non-cooperative equilibrium solution to this differential game. This game solution is compared with the Pareto optimal solution of the game. A similar differential game has been treated by Lancaster [1973]. Also in this game a capitalist society is divided into two social groups or classes, namely workers and capitalists, and the three ways workers could influence their consumption mentioned above are also mentioned by Lancaster. One difference between the present study and Lancaster's article is that the welfare functions in the present article are considerably more general than in Lancaster's game, where both welfare functions are given simply by the total consumption for the relevant group over a fixed (and finite) time period. Furthermore, Lancaster does not compare the equilibrium solution of his game with all Pareto optimal solutions, but only with the "social optimum" defined as the total consumption in the economy over the fixed time period. Lancaster has two main conclusions in his article. One is that the non-cooperative equilibrium solution is inefficient in the sense that it differs from what he calls the social optimum. The second conclusion is that the capitalist game has a lower capital accumulation than this social optimum. We shall see that Lancaster's first conclusion holds under quite general assump-
Journal Article•
01 Jan 1978