Showing papers on "Consumption (economics) published in 1979"

An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility

Abstract: The theory of inequality and intergenerational mobility presented in this essay assumes that each family maximizes a utility function spanning several generations. Utility depends on the consumption of parents and on the quantity and quality of their children. The income of children is raised when they receive more human and nonhuman capital from their parents. Their income is also raised by their "endowment" of genetically determined race, ability, and other characteristics, family reputation and "connections," and knowledge, skills, and goals provided by their family environment. The fortunes of children are linked to their parents not only through investments but also through these endowments acquired from parents (and other family members). The equilibrium income of children is determined by their market and endowed luck, the own income and endowment of parents, and the two parameters, the degree of inheritability and the propensity to invest in children. If these parameters are both less than unity, ...

Household Migration: Theoretical and Empirical Result

Abstract: A consumption theory of migration is developed which supplements the traditional job search models. Migration, seen as an equilibrating reaction to an initially non-optimal location, is analyzed using standard demand theory. When one groups goods into those that are traded between areas and those that are not (weather, racial discrimination, crime rates, etc.) it is clear that only changing demands for the non-traded goods will result in changing optimal locations (assuming supplies are fixed). Illustrating an increase in family income might lead to an increased demand for non-traded good ‘personal safety.’ This might result, for example, in the substitution (through migration) of a lower crime suburban neighborhood for a higher crime central city neighborhood. An empirically testable implication of the model is that the probability of migration should be positively related to changes in the absolute value of those exogenous variables which lead to altered demands for non-traded goods. This and other hypotheses were examined using cross-sectional data in a nonlinear maximum likelihood (prohibit) regression analysis. The results strongly support the model and its implications.

The Structure of World Energy Demand

Abstract: This book discusses the characteristics of the demand for energy—its response over time to changes in prices and in levels of economic activity and the role that energy plays as a consumption good and as a factor in industrial production. The book is particularly concerned with differences in the structure of energy demand across countries and the relationship of energy demand and energy prices to macroeconomic growth in the industrialized countries. The results reported in this econometric study may help to resolve issues that are important to the design of both energy and economic policy—issues such as the extent to which energy demand in the long run is responsive to price changes, the possibilities for interfuel substitution, the substitutability of energy with other factors (such as manpower) of industrial production, the impact of energy prices on macroeconomic output, and the ways in which energy demand differs in industrialized and underdeveloped countries.

New Life-Style Determinants of Women's Food Shopping Behavior:

Abstract: Women's current high levels of participation in the labor force have focused attention on changing life-styles and consumption patterns. This study uses life-style variables as predictors of food s...

Multiperiod Consumption and Investment Behavior with Convex Transactions Costs

Abstract: The effect of convex transactions costs on consumers' derived utility functions and on optimal consumption and investment decisions is examined in a general multiperiod framework. The extent to which multiperiod consumption-investment behavior and capital market equilibrium may be studied in a single period framework is discussed. Optimal investment policy, in terms of a region of no transactions, is shown to be of a particularly simple form.

Estimating Consumption Parameters for Food Policy Analysis

Abstract: Food policy analysis links nutrition objectives to macroeconomic policies and performance. At the heart of the analysis is a matrix of price and income elasticities that must be incomestrata-specific. Obtaining this matrix for aggregated income classes requires a blend of complex theory and sophisticated econometric analysis that is only possible with restrictive assumptions about the separability of the impact of price changes for one commodity class on changes in demand for other commodity groups. The separability assumptions are not overly restrictive in the context of such highly aggregated commodities as food, housing, or clothing. But when important nutritional effects occur due to substitution of one quality of wheat for another, or the substitution of cassava for rice, then the level of commodity detail needed to reproduce accurately the impact of relative price changes forecloses the "econometric" approach even for combined income classes. Obtaining the full matrix for disaggregated income classes requires a new approach and this paper reports one attempt.

Predicting Summer Energy Consumption from Homeowners' Attitudes1

Abstract: Two surveys examined the relationship between homeowners attitudes toward energy use and their actual summer electric consumption. In Survey 1, 56 couples filled out questionnaires concerning their energy attitudes. A factor analysis of their responses revealed four factors: comfort and health concerns, effort to conserve and monetary savings, role of the individual, and legitimacy of the energy crisis. The factors were entered into a multiple regression analysis to predict actual summer electric consumption. The attitudinal factors together significantly accounted for 55% of the variance in summer electric consumption. The comfort and health factor by itself explained 30% of the consumption variance. Survey 2, consisting of 69 couples, was conducted to elaborate the meaning of the factors. The results of the factor analysis of Survey 2 revealed six factors: comfort, health, individual's role, belief in science, legitimacy of the energy crisis, and effort to conserve. An overall regression analysis showed that the factors significantly explained nearly 60% of the summer consumption variance. The comfort factor was again the best predictor of summer electric consumption, accounting for 42% of the variance. It was concluded that attitudes about one's comfort are significantly related to household energy consumption (primarily air conditioning). The implications formore » energy conservation campaigns were discussed. 10 references, 3 tables.« less

Who Benefits from Government Expenditure?: A Case Study of Colombia

Abstract: Governments can improve the distribution of income an also can eradicate extreme poverty by changing the composition and direction of their public expenditure. But more important than the capacity of the fiscal budget to transfer income is its use to increase the consumption of such basic needs as housing, water, sewerage, and health and education services. Such use would permit the poorest groups in the population to enjoy higher levels of consumption at an earlier stage of development than would be the case if private forces of supply and demand alone were acting during the normal course of per capita income growth. What is the present performance of developing countries in reaching the poorest income groups through public expenditures? How has this performance evolved overtime? Are there constraints on the consumption of basic services other than the mere availability or supply of these services? This research study addresses these questions with the help of a case study carried out in Colombia.

The Old Age Security Hypothesis and Population Growth

Abstract: In traditional societies it is often argued that parents' desire for old age security in the form of transfers from their children provides an important motive for childbearing. Some doubt has been cast on this "old age security hypothesis" by recent estimates which suggest that the rate of return on investments in children tend to be negative in most developing countries. This paper presents a theoretical model which integrates micro-level decision making about fertility and life cycle consumption into a dynamic macro-level model of overlapping generations in order to investigate the implications of this hypothesis. In this model, observation of a negative rate of return to children and positive population growth in a traditional society may imply (1) that the old age security motive for childbearing is, in fact, very strong; (2) that the rate of population growth is "too high" from a Paretian point of view; and (3) that each individual in current and all future generations could be made better off if the rate of population growth were lower and the level of old age consumption were increased, but that a reduction in population growth alone would reduce welfare. A social security tax and transfer policy could be devised to induce a Pareto optimal rate of population growth and distribution of life cycle consumption only if measures are taken to offset the divergence between the private and social rate of return to children created by the social security scheme.

An Infinite Horizon Model with Money

Abstract: Publisher Summary This chapter discusses an infinite horizon model with money. The model is designed to focus on the role of government policy in determining the nature of the equilibrium. Equilibrium is defined as a sequence of prices, interest rates, and consumption for which the supply and demand for goods and bonds are equal to zero in each period. The characterization of maximal sequences is then combined with the conditions for equilibrium to provide a characterization of the equilibrium sequences in terms of a second-order difference equation in real and nominal money balances and a set of transversality conditions on the sequence of government transfer payments and borrowing. The key to analyzing the models is to recognize that besides affecting the relative price of future versus present consumption, the money rate of interest acts as a tax on consumption. Except for a few examples, the question of the existence of equilibrium for a given sequence of government policies is generally ignored in this chapter. The chapter focuses on the general structure of model.

Patterns of Consumption in Grasslands

Abstract: Previous chapters have focused on primary production of grasslands. Chapter 4 related consumer populations to producers in terms of biomass. We now consider the functional role of consumers and their role in ecosystem function. Consumers may have various effects on ecosystems.

The Middle Class and the Property Cycle during the Industrial Revolution

Abstract: The many excellent company and business histories of the Industrial Revolution period need to be complemented by studies of the middle-class family and household as an economic unit. A major part of consumption decisions and an important part of those decisions involving savings and the allocation of resources to different forms of investment were taken in the context of family and household rather than with reference to the firm or unit of production.

Effects of alcohol, instructions, and consumption rate on affect and physiological sensations.

Abstract: Sixty-four male normal drinkers participated in a study designed to assess the effects of alcohol, instructions that one has consumed alcohol, and rate of alcohol consumption on self-reports of affect and physiological sensations. Subjects were instructed that they would be consuming either an alcoholic or a nonalcoholic beverage, were actually administered either an alcoholic or a nonalcoholic beverage, and consumed their beverages at either a slow or rapid rate. The results showed that consumption of a moderate dose of alcohol induced positive affect and produced a variety of changes in physiological sensations. Instructions and consumption rate also selectively influenced some affects and sensations. These results suggest the need for controlling instructions and consumption rate in future research on alcohol's effects on affect and physiological sensations.

Optimal Economic Growth and Turnpike Theorems

Abstract: This chapter is concerned with the long-term tendencies of paths of capital accumulation that maximize, in some sense, a utility sum for society over an unbounded time span. However, the structure of the problem is characteristic of all economizing over time whether on the social scale or the scale of the individual or the firm. The mathematical methods that are used are closely allied to the old mathematical discipline, calculus of variations. The chapter discusses that the utility function depends on time, as in the standard theory of the calculus of variations. Also the function to be maximized is the sum of utility functions for each period over the future. It is described as a separable utility function over the sequence of future capital stocks and corresponds to the integral of calculus of variations. As the consumption of one period influences the utility of later consumption, the separability assumption is not exact. The treatment of utility in a period as dependent on initial and terminal stocks is not a restriction because the usual assumptions that make utility depend on consumption and consumption on production and terminal stocks implies that an equivalent utility depending on capital stocks exists. The chapter also discusses that the primary sources of the optimal growth model are aggregate savings programs and capital accumulation programs for an economy, the theorems, and methods of the subject find applications in other areas with increasing frequency.

The expenditure effects of alternative public supply institutions

Abstract: Most of the literature on the economics and politics of state and local government takes public provision of a service by a jurisdiction to be synonymous with production by the same government agency.' Empirically, this characterization is not far from the mark. In the case of municipalities, the only major service that is supplied by the private sector to a significant degree is refuse collection, and even here, public supply is dominant.2 In general, local governments tend to be local monopolies for the services they provide. Although this institutional arrangement is typical, alternatives are clearly conceivable. In fleshing out the role of the public sector, the reasons most often given for collective decision-making focus upon economies from joint consumption by more than one individual and upon costs associated with exclusion of potential nonpaying consumers. However, this reasoning offers a basis only for collectivizing consumption decisions and sheds no light upon how supply or production should be organized. A natural alternative to the conventional public supply mode is one in which a public entity registers a collective demand for various services and then arranges to purchase these services from whatever supply sources are available. Ideally, each public purchaser would face a range of supply options including, perhaps, both public and private enterprise vendors. In the remainder of this paper, the allocative consequences of these two alternative public supply institutions are compared.

The impact of public foodgrain distribution on food consumption and welfare in Sri Lanka

Abstract: The operation of the public food distribution system in Sri Lanka is explored. Budget subsidies on rice distribution began in the late 1940s, and in 1971 and 1972 67% of the island's rice consumption was channelled through the distribution scheme at considerable cost. Soon after, adverse developments in Sri Lanka's foreign trade sector and failure of domestic rice harvests led to reductions in the benefits accruing through the scheme. The public rice distribution system is reviewed from its inception until the changes introduced in 1978. The available evidence on food consumption and nutrition is surveyed, and the development of the rice ration and procurement schemes is explored, together with their impact on the rice economy. Time series (1950-1976) and household (1969-70) data are used to determine the impact of the rice distribution scheme on food consumption and calorie and protein intake in both the aggregate and within each income group. Some of the fiscal and social costs of operating the system and the distribution of aggregate benefits under different assumptions of foreign exchange rates are discussed

Household Bequest Behaviour and the National Distribution of Wealth

Abstract: Much of the theoretical literature on the distribution of wealth among households concentrates on identifying continuous-time Markov process models which have specific stationary distributions (see, for example, Sargan (1957), Wold and Whittle (1957), and Steindl (1972)) That research, which is highly technical, devotes little attention to the role of economic behavioural factors Studies which are more concerned with the exact character of the wealth transfer process, on the other hand, often eliminate all interpersonal income differences so that the stationary distribution of wealth for each generation collapses to a single value (see Meade (1966), Stiglitz (1969), and Atkinson (1971)) The purpose of this paper is to prove the existence and uniqueness of a non-trivial stationary distribution of wealth for a simple growth model the key component of which is a utility-maximization theory of the bequest behaviour of individual families The growth model, an adaptation of Samuelson's (1958) consumption-loan model, assumes that exogenous factors determine the intragenerational distribution of labour incomes and that the distribution remains unchanged over time The theory of household bequest behaviour modifies the familiar tenet that each family's utility comes solely from its own consumption to the following: a family's utility is a function not only of its own consumption, but also of the consumption of its descendants in all future generations For simplicity we assume that individual families live only one period; that there is only one output good; that either the good is storable or that there is a fixed supply of money (and money can be transferred between generations); that all existing family lines will continue forever; and, that all families have identical preference orderings These assumptions cause each household's direct utility function to have an infinite number of arguments If the interest rate on holdings of money is constant because of permanent, steady-state growth, however, each family's indirect utility function depends only on that interest rate and present family wealth Assuming that preferences are additively separable and stationary in the Koopmans' (1960) sense, Bellman's (1957) " principle of optimality " enables us to define the indirect function with the aid of a single recursive functional equation We can, in turn, use the indirect utility function to determine each family's optimal bequest Although every household's utility-maximizing bequest is a single-valued function of its wealth, the function will not be linear In fact, although we can establish many of its mathematical characteristics, we cannot represent the function explicitly Nevertheless, using Doob's (1953) theorems on discrete-time, continuous-state-space Markov processes, we can prove that provided each household's indirect utility function is finite, associated with each fixed distribution of labour incomes and steady-state interest rate there is a unique stationary distribution of wealth After presenting our model of family bequest behaviour in Section 1, in Section 2 we study in greater detail the properties of the function relating each family's wealth and optimal bequest Section 3 proves the existence of a unique stationary distribution of wealth, and Section 4 constructs a complete growth model In Section 4 we prove the surprising proposition that in the case of an economy with perishable goods and money

State and Local Taxes, Transfers and Regional Economic Growth

Abstract: Conflicting sets of evidence exist with respect to the effects of state and local taxes on industry location and regional economic growth in the United States. Survey results of business firms indicate that "high taxes" consistently rank close to or at the top of any list of determinants of industry location. But empirical studies on relative tax burdens have generally concluded that "high taxes do not drive out business," presumably because: (1) Insofar as taxes are higher in one state than another it may only represent a higher level of public goods production and consumption; (2) state and local government taxes on business are rather small (relative to total costs and sales) and do not vary greatly (relative to interstate variations in factor and transport costs). Neither firms nor persons have the option of eliminating all state and local taxes through migration [4; 8; 9; 14]. However, two tax issues which may be highly significant to regional economic growth are being ignored or otherwise circumvented by these arguments. The first is the degree of progression in the tax structure. Insofar as tax progression is greater than benefit progression in one locality relative to another, incentives exist for lower or zero income individuals to stay or enter and higher income individuals to depart. Business may act similarly insofar as the location of firms is dictated by higher income managerial personnel with personal incentives to locate in low tax progression states. The ultimate equilibrium is one of local government bankruptcy, as New York City (and to a lesser degree New York State) may well have discovered. By necessity, income redistribution through the public sector must be a Federal government function if population is geographically mobile. Put another way, given a choice between benefit versus ability-to-pay taxation, the latter may not be an economically rational option for a state or local government. Second, insofar as tax revenues are not used to finance the production of public goods and services (exhaustive expenditures) but instead finance transfer payments, there is again no flow or no perceived flow of benefits to resident firms and employed or employable indi-

Risk and Return

Abstract: IT IS A COMMON notion in finance that return is an increasing function of risk. It is well known, for example, that an increase in the nondiversifiable risk of a security will cause an increase in its required rate of return. It is not widely known, however, that a similar result does not hold in the aggregate. That is, an increase in risk, in the Rothschild-Stiglitz [1] sense, in an economy may not cause an increase in the required rate of return on the market portfolio and may, in fact, cause it to decrease. In this note, a model is developed which demonstrates these conclusions and also discusses the related issue of the impact of increasing risk on the risk free rate. I. Impact of Risk on Rates of Return Consider a two period state preference model with k identical investors and n possible states in the second period. The amount of consumption available in the ith state next period, Ci, and the amount of current consumption, Co, are taken as fixed. Investors assign probability vi to the occurrence of state i and pay Pi units of current consumption for a claim on one unit next period contingent on the occurrence of state i. The pxice of a unit of risk free consumption next period is, therefore:1

Capital Market Imperfection, the Consumption Function, and the Effectiveness of Fiscal Policy

Abstract: We shall derive a conventional macroeconomic consumption function from macroeconomic intertemporal consumer behavior. In addition, we show below that expansionary fiscal policy need not be ineffective even when the future tax implications of an increase in current government debt finance are perfectly foreseen. The common basis for both results is an imperfection in the capital market; consumers cannot borrow against future income.

The Interaction of Markets in Housing and Local Public Goods: A Simultaneous Equations Approach

Abstract: An important set of commodities entering household utility functions consists of police, fire, sanitation, education, and other services provided by local government agencies. Households can vary these local public goods components of their consumption bundles by utilizing two choice mechanisms. Through migration, households can purchase a different public goods package by purchasing a different community. Alternatively, households can participate in a voting process to alter the municipal service level and mix within a given community. The migratory allocation mechanism has been investigated in a body of literature associated with the name of Charles Tiebout [28].' Models of the local voting process have been developed within the social choice literature.2 Juxtaposition of the Tiebout and voting modeling approaches identifies their common concern with local public goods allocation, and also suggests that the two are highly interactive processes. The purpose of this paper is to integrate the Tiebout and voting allocation mechanisms into a single, more complete model for evaluating the local public goods market. The structure of our integrated model is founded upon two local public goods equilibrium concepts. The joint realization of supply-demand equilibrium in housing markets, and locational equilibrium for households, constitutes a Tiebout equilibrium. Satisfaction of median voter demands, together with local government budget balance, constitutes a political equilibrium. The simultaneous achievement of Tiebout and voting equilibrium is defined to constitute a politico-housing equilibrium, and provides the theoretical basis for the empirical estimation. Principal advantages afforded by our model include: (a) a behavioral interpretation of the municipal and school sector equations (the multiple equation approach in Meadows [16] is, essentially, one of budgetary accounting) (b) explicit treatment of the equi-

Inheritance and the Distribution of Wealth.

Abstract: next are a major cause of inequality in general and of the unequal distribution of wealth in particular. Despite the popularity, not to say antiquity, of this view, surprisingly little is known about the nature and extent of these transfers (here called bequests, but interpreted to include gifts inter vivos) or about their motivation. Similarly, models of saving and accumulation have tended to be somewhat cavalier about bequests, either assuming them away altogether or treating them in an ad hoc fashion, for example, by tacking an arbitrary "utility of bequests" on to a life-cycle model. It seems more satisfactory to derive bequest behaviour as part of the solution to some more general optimum problem. The most obvious framework for this approach is one in which individuals are altruistically motivated with respect to their children, and will choose to make bequests if, for example, they expect that the children would otherwise have markedly lower lifetime consumption than their own. Recently, several models of this dynastic-consumption equalizing type have been constructed (e.g. Bevan, 1974; Flemming, 1976, 1979; Stiglitz, 1977). In each case the intention of the models is to explore the functional dependence of the equilibrium distributions of wealth and consumption on the distribution of lifetime earnings. This paper is in that tradition. The present model is designed to study how the inter-generational transmission of inequality is affected by inter-generational earnings mobility, asymmetry between positive and negative bequests, the strength of parental altruism, the elasticity of the marginal utility of consumption and the return on wealth. The paper also examines whether the predictions generated by a model of this type are broadly consistent with what is actually observed. The first two considerations pose particular problems of analysis. Inequality may be transmitted by transfers of human wealth as well as by transfers of the material kind, and these two mechanisms are interrelated. Unless intergenerational mobility is perfect there will be some inter-generational link in earnings; hence high-earning individuals will choose a level of bequests in the expectation that their children may themselves be relatively high earners. The interesting question concerns how sensitive the wealth distribution is to different degrees of inter-generational earnings mobility. The sources of that mobility are, in the present analysis, less important than its extent, subject at least to the assumption that individuals cannot much alter the latter by manipulating the former. In what follows it is assumed that transfers of human wealth are entirely unplanned while those of material wealth are entirely planned.' The asymmetry between positive and negative bequests has two aspects. Suppose it seems desirable to an individual that some degree of consumption equalization takes place, but that this involves transfers to him from his children. Can he make a negative bequest? In general he can do so only with the active

Product Competition and Consumer Behavior in the Food Industries

Abstract: Conventional hypotheses regarding product competition and consumer buying behavior are inappropriate for examining these processes in the modern food system. Some new hypotheses about product development, consumer behavior, and their interface are presented. Marketing of new products is not driven by new technology but consists of incremental changes in the existing marketing mix. Adoption of products by consumers is not characterized by analytic consumption behavior, but by risk aversion and preference for incremental changes in the consumption set. Implications for the public interest in these processes are discussed.