Showing papers on "Consumption (economics) published in 1984"

An Econometric Analysis of Residential Electric Appliance Holdings and Consumption

Abstract: Recent micro-simulation studies of the demand for clectricity hy residences have attempted to modlel jointly the demand for appliance and the denmanid for electricity by appliance. Within this context it becomes important to test the statistical exogeneity of appliance dummy variables typically included in demand for electricity equations. If, as the theory would suggest, the demand for durables and their use are related decisions by the consumer, specifications which ignore this fact will lead to biased and inconsistent estimates of price and income elasticities. The present paper attempts to test this bias using a subsample of the 1975 survey of 3249 households carried out by the Washington Center for Metropolitan Studies (WCMS) for the Federal Energy Administration. We discuss and derive a unified model of the demand for consumer durables and the derived demand for electricity. To determine the magnitude of the bias resulting from estimating a unit electricity" consumption (UEC) equation bv ordinary least squares when unobserved factors influence both choice of appliances and intensity of use. we intr-oduce and cstimate a joint water-heat space-heat choice model, and concluide with the consistent estimation and specification of demand for electricity equations.

Socially Responsible Consumers: Profile and Implications for Public Policy

Abstract: Socially responsible consumption is an important prerequisite to successful voluntary conservation programs. This article reviews past research describing the socially responsible consumer and prov...

Improved international comparisons of real product and its composition: 1950–1980

Abstract: A set of international comparisons is developed for 124 countries over the three post World War II decades, 1950-80. A Data Table is presented which gives, for most countries and most years, real product estimates for three different national income concepts and for the major subaggregates consumption, investment, and government. Detailed comparative price level estimates are provided as well.

Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles

Abstract: Time-separability of utility means that past work and consumption do not influence current and future tastes. This form of preferences does not restrict the size of intertemporal-substitution effects, but does place constraints on the relative responses of leisure and consumption to changes in relative prices and in permanent income. These constraints are important for evaluating the impact of shifts in expectations about the future, which play a key role in equilibrium models of the business cycle. Further, if consumption and effort are to be positively correlated over the cycle, then equilibrium theories with time-separable preferences predict a procyclical behavior for the real wage rate.

Survival versus Consumption

Abstract: We develop an indirect method to estimate utility and willingness to pay WTP for reductions in the risk of death at various ages. Using a life-cycle model of consumption, we assume that an individual sets his consumption level each year so as to maximize his expected lifetime utility. Alternative assumptions about opportunities for borrowing and annuities characterize two polar types of societies. In our Robinson Crusoe case, an individual must be entirely self-sufficient, and annuities are not available. In our perfect markets case, an individual can borrow against future earnings and purchase actuarially fair annuities; we show that under these assumptions WTP is the sum of livelihood discounted expected future earnings and consumer surplus. To illustrate our methods, we derive WTP for an average financially independent American man under plausible assumptions. The model is calibrated to 1978 earnings e.g., $18,000 per year for men aged 45-54 with at least some income. In the Robinson Crusoe case, WTP increases from $500,000 at age 20 to a peak of $1,250,000 at age 40, and declines to $630,000 at age 60. In the perfect markets case, age variations are less pronounced; WTP is $1,050,000 at age 20, peaks at $1,070,000 at age 25, and declines to $600,000 at age 60. These results suggest that individuals value risks to their lives at several times the pro-rata share of their future earnings.

Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?

Abstract: Almost all of the recent empirical tests of the rational expectations - permanent income hypothesis (RE-PIH) have rejected the hypothesis. The null hypothesis in this empirical literature typically consists of the joint hypothesis that 1) agents' expectations are formed rationally, 2) desired consumption is determined by permanent income, and 3) capital markets are"perfect" in the sense that agents can lend or borrow against expected future income at the same interest rate. This paper attempts to determine whether the excess sensitivity of consumption to current income can be attributed to a failure of the third component of the joint hypothesis -- the assumption of "perfect" capital markets -- as opposed to a failure of one or both of the first two assumptions. The paper examines, as a specific alternative to the PIH, a simple "Keynesian" consumption function in which the behavioral MPC out of transitory income is different from zero. Interpreting the unemployment rate as a proxy for the proportion of the population subject to liquidity constraints, the paper uses a generalized version of the econometric model in my earlier paper(1981) to conduct a specification test of the "Keynesian" consumption function. The finding that the estimate of the MPC out of transitory income is dramatically affected, in both magnitude and statistical significance, by the inclusion of the proxy for liquidity constraints suggests that liquidity constraints are an important part of the explanation of the observed excess sensitivity of consumption to current income.

The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data

Abstract: The permanent income hypothesis is tested on a four-quarter panel of about two thousand Japanese households for ten commodity groups. Consumption is a distributed lag function of expenditures, and the utility function is additively separable in time. Durability is defined as the persistence of the distributed lag. The permanent income hypothesis implies that, for each commodity group, expected change in expenditures is correlated neither with past expenditure changes on other commodities nor with expected change indisposable income, if its own lags are controlled for. The main results are the following: (1) durability is substantial even for food and services, (2)the permanent income hypothesis applies to almost all (probably more than ninety percent) of the population, and (3) the habit persistence hypothesis is rejected in favor of the permanent income hypothesis.

An economic analysis of the timing of childbirth

Abstract: Summary In this paper we present a new ‘home economics’ model of the timing of the first birth. The child-timing decision is treated as a multi-period planning problem in which the date of first birth influences both the mean and the dispersion of the household's intertemporal income distribution. Couples are assumed to use capital markets and the timing of childbirth to smooth life-cycle consumption. Optimal timing is shown to depend upon the rate at which job skills depreciate during unemployment, the wife's pre-marital work experience, the opportunity costs of completing a family, and the mean and dispersion of the husband's intertemporal earnings profile. The theory is tested with statistics drawn from the National Longitudinal Surveys. The results strongly support those theoretical hypotheses that can be tested and offer insights into timing patterns. If the upsurge in women's labour force participation and educational involvement continue, our work implies that there will be a marked economic incent...

Consumption During Retirement: The Missing Link in the Life Cycle

Abstract: This study presents the first evidence on the relation of consumption to lifetime wealth, based on data from the 1973 and 1975 Retirement History Survey that have been linked to Social Security earnings records. Nearly 500 white, married, fully retired couples ages 62-69 form the basis of the analysis. On average their consumption early in retirement exceeds by 14 percent the income that their financial, pension and Social Security wealth can generate. This implies that their saving, both private and through Social Security, is insufficient to sustain consumption throughout the rest of their lives. Additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement. These two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate, coupled with either a bequest motive or uncertainty about the length of life. They also imply that, even when combined with private pensions and savings, Social Security in the United States today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired.(This abstract was borrowed from another version of this item.)

World food equation: interrelations among development, employment, and food consumption

Abstract: The problem of expanding food supply has been made more complex and more dependent on technological progress by the encroachment of a burgeoning population on a limited land area. Rapid growth in the rural labor force in the low-income developing countries not only increases the problem of providing adequate employment, particularly in the face of diminishing scope for expanding the land area, but also reduces the possibility of solving poverty problems simply by a redistribution of assets and income flows. Section II reviews past trends and current levels of food production, trade, and consumption. Section III discusses a controversial issue: the extent and seriousness of food deprivation. These sections lead to the same conclusion: the choice of development strategy is decisive in determining the level at which the food equation balances. An examination of contrasting development strategies and their implications for food production (Section IV) is followed by an exploration of the emerging consensus on the complex and difficult task of implementing a unimodal pattern of accelerated agricultural development, consistent with a high rate of growth in employment and food consumption. Interacting health-, nutrition-, and family-planning programs are viewed as important claimants of organizational and other resources. The review leadsmore » to the conclusion that reduction of malnutrition and related manifestations of poverty requires a set of interacting forces, characterized as a ring, that link nutritional need, generation of effective demand for food on the part of the poor, increased employment, a strategy of development that structures demand towards goods and services that have a high employment content, production of wage goods, and an emphasis on growth in agriculture. 183 references, 4 tables.« less

The Impact of Marital Dissolution on Income and Consumption in Single-Parent Households

Abstract: A synthetic cohort of separating and divorcing mothers was constructed from respondents in the University of Michigan Panel Study of Income Dynamics Household income, income sources, and food and housing expenditures were examined for the last married year and for five years after marital dissolution In general, it is shown that income drops precipitously after marital dissolution and remains nearly at its new low level during the period of observation Expenditures for food, but not for housing, also drop The paper examines differences in the experiences of those who, when married, had been in different income levels

Risk and Return: Consumption Beta Versus Market Beta

Abstract: Much recent work emphasizes the joint nature of the consumption decision and the portfolio allocation decision. In this paper, we compare two formulations of the Capital Asset Pricing Model. The traditional CAPM suggests that the appropriate measure of an asset's risk is the covariance of the asset's return with the market return. The consumption CAPM, on the other hand, implies that a better measure of risk is the covariance with aggregate consumption growth. We examine a cross-section of 464 stocks and find that the beta measured with respect to a stock market index outperforms the beta measured with respect to consumption growth.

Government finance in developing countries

Abstract: Fiscal systems throughout the world have been severely strained in recent years, as governments have assumed more responsibility for economic management. The developing counties, where needs are greatest and resources scarcest, have found their finances especially hard pressed. This book examines a range of issues in government finance that confront developing countries: the formulation and execution of national budget; the objectives, size, and effects of expenditures; the purposes and results of various ways of taxing income, wealth, consumption, exports, or natural resources; the role of foreign and domestic borrowings; and the consequences of financing by money creation. The book also relates fiscal operations to goals such as growth and development, economic stabilization, equitable distribution, and national self-reliance. The author stresses the need to take account of economic and political conditions and particularly administrative capacity when evaluating the suitability of fiscal measures in developing countries.

The Welfare Effects of the Introduction of Storage

Abstract: This paper examines the welfare effects of introducing storage into a market with stochastic supply in which all agents are competitive profit-maximizers with rational expectations. These welfare effects are the net result of the initial increase in demand for stock-building and the partial and asymmetric reduction in the dispersion of consumption brought about by storage. The distributional impacts depend crucially on the information available to producers before storage is introduced, the elasticity of supply, the specification of the consumption demand curve, and the cost of storage.

Comparative Studies of National Incomes and Prices

Abstract: Income comparisons between persons or groups of persons in different countries are a special field of inquiry mainly because there are different currency units. For the most part, the other theoretical and empirical problems encountered in international income comparisons are similar to those of within-nation comparisons between different persons at the same time or different groups of persons either interspatially or, what is more common, intertemporally (e.g., constant price series of national income). The qualifications "mainly" and "for the most part" are included because some writers hold that international comparisons are complicated or even invalidated by differences in consumption patterns. Sometimes differences in tastes are held to underlie these variations in consumption patterns, variations that are often much larger between countries than those found between regions within a country or between different periods in the same country. This essay focuses, in its methodological aspects, on these special problems. The basic problems that are common to international and within-nation comparisons are left to the standard literature on national accounts.2 We turn now to the currency unit problems and reserve the question of tastes for a later section.

Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data

Abstract: Several recent papers have tested the permanent income-cum-rational expectations hypothesis using data on nondurable or semidurable consumption. We show how this approach can be extended to the case of durables. An application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis. This result is unchanged in subsamples segregated by family holdings of liquid assets.

The Role of Consumption in Economic Fluctuations

Abstract: Consumption and income tend to move together; the correlation of their first differences is about 0.14. In most accounts, the correlation is attributed to the upward slope of the consumption function. When the publicis better off, they consume more. But in the microeconomic theory of the household, income is a variable chosen by the household. Choosing to workmore, and therefore to consume less time away from work, is a sign of diminished well being.The structural relation between earnings and consumption should have a negative slope.The explanation of the observed positive correlation of consumption and income must rest on shifts of the consumption-income relation, not movements along it. An examination of data for the U.S. in the twentieth century shows that the slope of the consumption-income relation has been approximately zero. Shifts in consumer behavior explain the positive observed correlation; they are an important, but not dominant, source of overall fluctuations in the aggregate economy.

Intertemporal Commodity Futures Hedging and the Production Decision

Abstract: This paper deals with the producer's optimal use of commodity futures in hedging. The framework for analysis is an intertemporal consumption and investment model. The producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval. During the period, he faces both price and output uncertainties. In applying stochastic dynamic programming methods, this paper shows the effect of these risks on his consumption behavior. Further, the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions. Finally, implications of these results on the futures markets are discussed. THIS PAPER STUDIES a normative model of the farmer's optimal hedging strategy and consumption behavior in a continuous-time framework. Recent papers (for example, Berck [3], Rolfo [18], Stoll [21]) have analyzed the farmer's hedging strategies in a one-period context. These papers have provided interesting insights into the farmer's production decisions and the optimal design of futures contracts and markets. However, in a one-period model some rather restrictive conditions are imposed on the individual's behavior. For example, in these models an individual is assumed to ignore any information arrival process. As a result, the individual is assumed to adjust neither consumption behavior nor hedging positions to the changing state of the world during the production period. These conditions can be relaxed in a continuous-time framework. In an intertemporal context, the farmer's hedging problem may be viewed as follows. Since the farm income (at harvest) depends on both the spot price and the output (in bushels), the farmer is subject to both price and output uncertainties during the production period.1 When the farmer can hedge only in the commodity futures market, he cannot eliminate both the price and output uncertainties by any hedging strategy.2 As the farm income represents a significant portion of his wealth, he must necessarily hold an undiversified portfolio during the production period. Therefore, in essence, the farmer must solve for his investment/consumption behavior and his hedging strategy, facing the nonmarketable asset problem (Mayers [14]) in a multiperiod framework. In this context, one can see intuitively the major difference between a one

Integrating Consumption and Investment Motives in a Neoclassical Model of Demand for Education

Abstract: SUMMARY Empirical evidence does not agree with the investment-model of the demand for education: out of pocket costs have another impact than earnings foregone. This difference can be explained by consumption motives. The demand for education is then greater, the full price of education exceeds discounted future incremental earnings, net discounted wealth is not maximum and the rate of return to marginal investments in education is smaller than the interest rate.

Dynamic Hours of Work Functions for Husbands, Wives, and Single Females

Abstract: Hours of work equations are derived from the constrained maximization of a utility function that is not separable over time and that varies with a household's demographic structure. These equations are fitted to observations on wage rates, nonlabor income, and other variables for husbands, wives, and unmarried women. The dependence of each household's current work and consumption behavior upon its work and consumption behavior in the past is examined closely and different interpretations of the relationship are confronted with the data.

Parameter stability and the u.s. demand for beef

Abstract: The main objective of this paper is to test the hypothesis that consumer preferences for beef in the United States have been affected by structural change, which reduces to testing for parameter stability in estimated demand equations. To this end, alternative specifications of the demand function are estimated using a general form of the Box-Cox transformation. Tests based on recursive residuals and on the F distribution provide little evidence of structural change, and suggest that the recent decline in beef consumption may be explained by changes in relative prices. The sizable decline in U.S. beef consumption that has taken place in recent years has led to some speculation, in both the popular and professional literature, that the demand for beef may have been affected by a structural change resulting, ceteris paribus, in consumption levels lower than those of the early 1970s (Bertin; Hieronymus; Chavas). The cause of this alleged structural shift is often ascribed to the increased nutritional consciousness of consumers concerned with limiting their intake of fat and cholesterol. Whether the decrease in the consumption of beef is a result of changed market conditions (relative prices and income), or reflects a more fundamental change in the underlying consumers' preferences, is an important question for both the beef industry and agricultural economists. Indeed, if the consumption decline is due to market forces, there is little that the beef industry can do, other than wait for a more favorable economic climate. If, however, there has been a structural shift in the demand for beef, the industry needs to pur

Capital accumulation and the characteristics of private intergenerational transfers

Abstract: Many recent studies of the process of family accumulation in general and household response to social security in particular have revealed growing dissatisfaction with the life-cycle theory of saving (see, for example, Barro, 1978; Kotlikoff, 1979; Darby, 1979; Kotlikoff and Summers, 1981; Kurz, 1981; Blinder, Gordon and Wise, 1981; David and Menchik, 1982; Leimer and Lesnoy, 1982). An alternative to the life-cycle hypothesis is expressed by defining the preference of each family over its own consumption as well as the welfare of the generations that follow. Thus, each family consists of an infinite chain of generations who have interdependent preferences, and for this reason we shall call it the "Inter-Generational Hypothesis". It was recently used by Barro (1974, 1978) to attack the conclusions of the life-cycle hypothesis. Our purpose in this paper is to start the long road of studying the structure of the private inter-generational transfer system with the aim of providing additional tests of the two competing hypotheses.