Showing papers on "Consumption (economics) published in 2003"

The Measurement of Multidimensional Poverty

Abstract: Many authors have insisted on the necessity of defining poverty as a multidimensional concept rather than relying on income or consumption expenditures per capita. Yet, not much has actually been done to include the various dimensions of deprivation into the practical definition and measurement of poverty. Existing attempts along that direction consist of aggregating various attributes into a single index through some arbitrary function and defining a poverty line and associated poverty measures on the basis of that index. This is merely redefining more generally the concept of poverty, which then essentially remains a one dimensional concept. The present paper suggests that an alternative way to take into account the multi-dimensionality of poverty is to specify a poverty line for each dimension of poverty and to consider that a person is poor if he/she falls below at least one of these various lines. The paper then explores how to combine these various poverty lines and associated one-dimensional gaps into multidimensional poverty measures. An application of these measures to the rural population in Brazil is also given with poverty defined on income and education.

Micro-Level Estimation of Poverty and Inequality

Abstract: Recent theoretical advances have brought income and wealth distributions back into a prominent position in growth and development theories, and as determinants of specific socio-economic outcomes, such as health or levels of violence. Empirical investigation of the importance of these relationships, however, has been held back by the lack of sufficiently detailed high quality data on distributions. Household surveys that include reasonable measures of income or consumption can be used to calculate distributional measures, but at low levels of aggregation these samples are rarely representative or of sufficient size to yield statistically reliable estimates. At the same time, census (or other large sample) data of sufficient size to allow disaggregation either have no information about income or consumption, or measure these variables poorly. This note outlines a statistical procedure to combine these types of data to take advantage of the detail in household sample surveys and the comprehensive coverage of a census. It extends the literature on small area statistics (Ghosh and Rao (1994), Rao (1999)) by developing estimators of population parameters that are nonlinear functions of the underlying variable of interest (here unit level consumption), and by deriving them from the full unit level distribution of that variable. In examples using Ecuadorian data, our estimates have levels of precision comparable to those of commonly used survey based welfare estimates—but for populations as small as 15,000 households, a ‘town.’ This is an enormous improvement over survey based estimates, which are typically only consistent for areas encompassing hundreds of thousands, even millions, of households. Experience using the method in South Africa, Brazil, Panama, Madagascar, and Nicaragua suggest that Ecuador is not an unusual case (Alderman et al. (2002), and Elbers et al. (2002)).

International Business Cycles: World, Region, and Country-Specific Factors

Abstract: The paper investigates the common dynamic properties of business-cycle fluctuations across countries, regions, and the world. We employ a Bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates (output, consumption, and investment) in a 60-country sample covering seven regions of the world. The results indicate that a common world factor is an important source of volatility for aggregates in most countries, providing evidence for a world business cycle. We find that region-specific factors play only a minor role in explaining fluctuations in economic activity. We also document similarities and differences across regions, countries, and aggregates. (JEL F41, E32, C11, C32)

Why is There so Little Money in Politics

Abstract: In this paper, we argue that campaign contributions are not a form of policy-buying, but are rather a form of political participation and consumption. We summarize the data on campaign spending, and show through our descriptive statistics and our econometric analysis that individuals, not special interests, are the main source of campaign contributions. Moreover, we demonstrate that campaign giving is a normal good, dependent upon income, and campaign contributions as a percent of GDP have not risen appreciably in over 100 years: if anything, they have probably fallen. We then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators' votes. Finally, we illustrate that when one controls for unobserved constituent and legislator effects, there is little relationship between money and legislator votes. Thus, the question is not why there is so little money politics, but rather why organized interests give at all. We conclude by offering potential answers to this question.

Why is There So Little Money in U.S. Politics

Abstract: In this paper, we argue that campaign contributions are not a form of policy-buying, but are rather a form of political participation and consumption. We summarize the data on campaign spending, and show through our descriptive statistics and our econometric analysis that individuals, not special interests, are the main source of campaign contributions. Moreover, we demonstrate that campaign giving is a normal good, dependent upon income, and campaign contributions as a percent of GDP have not risen appreciably in over 100 years: if anything, they have probably fallen. We then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators' votes. Finally, we illustrate that when one controls for unobserved constituent and legislator effects, there is little relationship between money and legislator votes. Thus, the question is not why there is so little money politics, but rather why organized interests give at all. We conclude by offering potential answers to this question.

Intrahousehold Resource Allocation in Cote D'Ivoire: Social Norms, Separate Accounts and Consumption Choices

Abstract: In Cote d'Ivoire, as in much of Africa, husbands and wives farm different crops on separate plots. These different crops are differentially sensitive to particular kinds of rainfall shocks. We find that conditional on overall household expenditure, the composition of expenditure is sensitive to the gender of the recipient of a rainfall shock. For example, rainfall shocks associated with high women's income shift expenditure towards food. Social norms constrain the use of profits from yam cultivation, which is carried out by men. Correspondingly, we find that rainfall-induced fluctuations in income from yams are transmitted to expenditures on education and food, not to expenditures on private goods. We reject the hypothesis of complete insurance within households, even with respect to publicly observable weather shocks. Different sources of income are allocated to different uses depending upon both the identity of the income earner and upon the origin of the income.

Growth and Shocks: evidence from rural Ethiopia

Abstract: Using panel data from villages in rural Ethiopia, the paper studies the determinants of consumption growth (1989-97), based on a microgrowth model, controlling for heterogeneity. Consumption grew substantially, but with diverse experiences across villages and individuals. A key focus is on whether shocks affect growth. Rainfall shocks have a substantial impact on consumption growth, and its impact presists for many years. There also appears to be a significant, persistent growth impact from the largescale famine in the 1980s, as well as substantial externalities from the presence of road infrastructure. The findings related to the persistent effects of rainfall shocks and the famine crisis imply that welfare losses due to the lack of insurance and protection measures are well beyond the welfare cost of short term consumption fluctuations.

Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perspective

Abstract: In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. Using aggregate data for the US, we find that a decrease in the ratio of housing wealth to human wealth predicts higher returns on stocks. Conditional on this ratio, the covariance of returns with aggregate risk factors explains eighty percent of the cross-sectional variation in annual size and book-to-market portfolio returns.

Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods

Abstract: We analyze a model of optimal consumption and portfolio selection in which consumption services are generated by holding a durable good. The durable good is illiquid in that a transaction cost must be paid when the good is sold. It is shown that optimal consumption is not a smooth function of wealth; it is optimal for the consumer to wait until a large change in wealth occurs before adjusting his consumption. As a consequence, the consumption based capital asset pricing model fails to hold. Nevertheless, it is shown that the standard, one factor, market portfolio based capital asset pricing model does hold in this environment. It is shown that the optimal durable level is characterized by three numbers (not random variables), say x, y, and z (where x

Sustainable Consumption: A Theoretical and Environmental Policy Perspective

Abstract: Within environmental social sciences, the authors believe that the analysis of sustainable production should be complemented by bringing in issues of sustainable consumption and lifestyles. It is possible to place a stronger emphasis on consumption issues without lapsing into the socio-psychological models that were used for so long in the analyses of environmental (un)friendly behaviors of citizen-consumers. The article argues that the social practices model, derived from structuration theory, offers a feasible alternative in this respect, because the model makes possible a sociological, "contextual" approach to consumption behaviors and lifestyles. The kind of questions the social practices model generates for empirical research are illustrated using the example of domestic consumption of utility products and services. By discussing a number of pilot studies within Dutch environmental policymaking, the future agenda of the politics of sustainable consumption is explored and commented upon.

Jealousy and Equilibrium Overconsumption

Abstract: The idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence. Recent research in finance has used this idea, through consumption externalities, to explore asset-pricing anomalies. Consumption externalities potentially break the link between Pareto optimality and competitive equilibria and open the door for beneficial government intervention (e.g., Lars Ljungqvist and Harald Uhlig, 2000). In this paper, we delineate two effects that a consumption externality may have. An increase in aggregate consumption may: (a) raise the marginal utility of individual consumption relative to leisure, and/or (b) lower an individual’s utility level. We refer to (a) as “keeping up with the Joneses” (henceforth, KUJ), following Jordi Gali (1994), and we refer to (b) as jealousy. Jealousy is a distinct concept from KUJ. Under KUJ, an individual derives greater utility from additional own consumption relative to leisure when others consume more. At the same time, higher per capita consumption holding fixed individual consumption can trigger either jealousy, so that individual utility falls, or admiration, so that individual utility rises. In Section I of this paper, we show that jealousy implies that the laissez-faire equilibrium consumption level is greater than the optimal level. Whether preferences exhibit KUJ is not necessary for this main result. Intuitively, in the presence of jealousy, consumption is similar to pollution. Overpollution exists because individuals do not take into account the cost of polluting on others, not because an increase in economywide pollution makes the return to individual polluting higher. Similarly, overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others. Things go in the opposite direction when individuals are admiring. In Section II, we consider a functional form that encompasses several existing models. We show that jealousy determines the optimal tax to correct overconsumption and that KUJ is mainly important for asset pricing.

Consumers and Consumption

Abstract: Consumption is a social, cultural, and economic process of choosing goods, and this process reflects the opportunities and constraints of modernity. Viewing consumption as an “institutional field,” the review suggests how consumption bridges economic and cultural institutions, large-scale changes in social structure, and discourses of the self. New technologies, ideologies, and delivery systems create consumption spaces in an institutional framework shaped by key social groups, while individual men and women experience consumption as a project of forming, and expressing, identity. Studying the institutional field requires research on consumer products, industries, and sites; on the role of consumption in constructing both the consuming subject and collective identity; and on historical transitions to a consumer society. Ethnography, interviews, and historical analysis show a global consumer culture fostered by media and marketing professionals yet subject to different local interpretations.

Global production and consumption of animal source foods.

Abstract: This article provides interpreted statistics and information on global livestock production and the consumption of animal source foods from the Food and Agriculture Organization of the United Nations statistical data base. Country data are collected through questionnaires sent annually to member countries, magnetic tapes, diskettes, computer transfers, websites of the countries, national/international publications, country visits made by the FAO statisticians and reports of FAO representatives in member countries. These data show that livestock production is growing rapidly, which is interpreted to be the result of the increasing demand for animal products. Although there is a great rise in global livestock production, the pattern of consumption is very uneven. The countries that consume the least amount of meat are in Africa and South Asia. The main determinant of per capita meat consumption appears to be wealth. Overall, there has been a rise in the production of livestock products and this is expected to continue in the future. This is particularly the case in developing countries. The greatest increase is in the production of poultry and pigs, as well as eggs and milk. However, this overall increase obscures the fact that the increased supply is restricted to certain countries and regions, and is not occurring in the poorer African countries. Consumption of ASF is declining in these countries, from an already low level, as population increases.

Consumption-Based Asset Pricing

Abstract: This chapter reviews the behavior of financial asset prices in relation to consumption. The chapter lists some important stylized facts that characterize US data, and relates them to recent developmenets in equilibrium asset pricing theory. Data from other countries are examined to see which features of the US experience apply more generally. The chapter argues that to make sense of asset market behavior one needs a model in which the market price of risk is high, time-varying, and correlated with the state of the economy. Models that have this feature, including models with habit-formation in utility, heterogeneous investors, and irrational expectations, are discussed. The main focus is on stock returns and short-term real interest rates, but bond returns are also considered.

Just oil? the distribution of environmental and social impacts of oil production and consumption

Abstract: ▪ Abstract This review presents existing data and research on the global distribution of the impacts of oil production and consumption. The review describes and analyzes the environmental, social, and health impacts of oil extraction, transport, refining, and consumption, with a particular focus on the distribution of these burdens among socioeconomic and ethnic groups, communities, countries, and ecosystems. An environmental justice framework is used to analyze the processes influencing the distribution of harmful effects from oil production and use. A critical evaluation of current research and recommendations for future data collection and analysis on the distributional and procedural impacts of oil production and consumption conclude the review.

Mobile Phone Use as Part of Young People's Consumption Styles

Abstract: The paper reports on an empirical study of the connection between consumption patterns and mobile phone use. The data stem from a survey of Finnish young people aged 16–20. The results indicate that young people's relationship to the mobile phone is consistent with their general consumption styles. An "addictive" use of the phone was related to "trendy" and "impulsive" consumption styles and prevalent among females. Technology enthusiasm and trend-consciousness was linked to impulsive consumption and "hard" values and prevalent among males. A frugal mobile phone use was not related to gender but to environmentalism and thrifty consumption in general. The traditional gender division in mobile phone use styles that could be observed is interesting in the light of conjectures that genders are becoming more alike in their use of new technology. Technology enthusiasm, usually regarded as a "typically male" thing, was also linked to "female" consumption styles. This may reflect young men's changing relationship to consumption.

Second-hand cultures

Abstract: 1Introduction Part I: Spacialities of Exchange 2Geographies of 'location' 3Constituting Difference 4Spaces of Shopping Practice Part II: Practice of Second-hand Consumption 5Redefining Rubbish: Commodity Disposal and Sourcing 6Transformations: Commodity Recovery, Redefinition, Divestment 7Gifting and Collecting 8Reflections/Further Directions

Financial Integration and Macroeconomic Volatility

Abstract: This paper examines the impact of international financial integration on macroeconomic volatility. Economic theory does not provide a clear guide to the effects of financial integration on volatility, implying that this is essentially an empirical question. We provide a comprehensive examination of changes in macroeconomic volatility in a large group of industrial and developing economies over the period 1960-99. We report two major results: First, while the volatility of output growth has, on average, declined in the 1990s relative to the three earlier decades, we also document that, on average, the volatility of consumption growth relative to that of income growth has increased for more financially integrated developing economies in the 1990s. Second, increasing financial openness is associated with rising relative volatility of consumption, but only up to a certain threshold. The benefits of financial integration in terms of improved risk-sharing and consumption-smoothing possibilities appear to accrue only beyond this threshold.

Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund

Abstract: A central implication of the life-cycle/permanentincome hypothesis (LC/PIH) is that consumers should not respond to predictable changes in their income. To test this hypothesis, a number of recent papers have exploited natural experiments to identify anticipated income changes. In particular, recent work by Parker (1999) uses the change in after-tax income due to the cap on earnings subject to the Social Security tax, and a related paper by Souleles (1999) examines the response of consumption to income tax refunds. Surprisingly, Parker and Souleles find that even when income is expected to change within the year, expenditure is excessively sensitive to the timing of the income change. While their results can be interpreted as evidence that our canonical model of consumption is inadequate, an alternative explanation is that the anticipated income changes they exploit are small and irregular, and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains. In support of this interpretation, Browning and Collado (2001) find that the seasonal consumption patterns of Spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments. This paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of Alaska’s Permanent Fund to every resident in the state of Alaska that should yield an unusually powerful test of the LC/PIH. These payments are large and clearly anticipated by Alaskan residents. Using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the Permanent Fund, I find no evidence that the consumption of Alaskan households reacts to these payments. In addition, I find no evidence that the seasonal pattern of consumption in Alaska differs from that in the other 49 states or that households in Alaska are subject to fewer liquidity constraints, engage in less buffer-stock saving, or spend a smaller fraction of their income on semidurable goods than households in the rest of the United States. However, although households in Alaska do not overreact to payments from the Permanent Fund, I find that the consumption of the very same households is excessively sensitive to their income tax refunds. This evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large, regular, and easy to predict, but will not do so when they are small and irregular. The paper proceeds as follows. The next section of the paper presents details on the * Department of Economics, Princeton University, Princeton, NJ 08544, and National Bureau of Economic Research (e-mail: chsieh@princeton.edu). I am very grateful to the Bureau of Labor Statistics (BLS) for providing access to the data from the Consumer Expenditure Survey and to its staff, particularly Steven Henderson, Walter VandeHeide, and Wolf Weber, for their generous assistance during my visits to the BLS. I also thank Nanci Jones for providing data and patiently answering questions on the operation of the Alaska Permanent Fund. Anne Case, Angus Deaton, Jonathan Parker, and two referees provided useful comments. The views expressed in this paper are personal and should not be attributed to the BLS. 1 I refer to the certainty-equivalent version of the LC/ PIH, or one in which the expected variance of consumption is constant. As is well known, without these assumptions, the LC/PIH only implies smoothing of marginal utility, not necessarily of consumption. 2 See Christina H. Paxson (1992); John Shea (1995); Jonathan A. Parker (1999); Nicholas S. Souleles (1999); Martin Browning and M. Dolores Collado (2001). Also see Ronald A. Bodkin (1959) for an early example of the use of a natural experiment to test for excess sensitivity. For comprehensive reviews of the large literature on empirical tests of the LC/PIH, see Angus Deaton (1992), Browning and Annamaria Lusardi (1996), and Browning and Thomas F. Crossley (2001). 3 In 1998, for example, the Permanent Fund paid $1,541 to every resident of the state of Alaska.

Luxury Goods and the Equity Premium

Abstract: This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying utility as a nonhomothetic function of both luxury and basic consumption goods, we derive pricing equations and evaluate the risk of holding equity. Household survey and national accounts data mostly reflect basic consumption and therefore overstate the risk aversion necessary to match the observed equity premium. The risk aversion implied by the consumption of luxury goods is more than an order of magnitude less than that implied by national accounts data. For the very rich, the equity premium is much less of a puzzle.

Building a Better Theory of Well-Being

Abstract: What do social surveys of life cycle experience tell us about the determinants of subjective well-being? First, that the psychologists' setpoint model is wrong. Life events in the nonpecuniary domain, such as marriage, divorce, and physical disability, have a lasting effect on well-being, and do not simply deflect the average person temporarily above or below a setpoint given by genetics and personality. Second, mainstream economists' inference that in the pecuniary domain "more is better," based on revealed preference theory, is wrong. An increase in income, and thus in the goods at one's disposal, does not bring with it a lasting increase in well-being, because of the negative effect on utility of hedonic adaptation and social comparison. The utility anticipated ex ante from an increase in consumption turns out ex post to be less than expected, as one adapts to the new level of living, and as the living levels of others improve correspondingly. A better theory of well-being builds on the evidence that adaptation and social comparison affect utility more in pecuniary than nonpecuniary domains. The failure of individuals to anticipate that these influences disproportionately undermine utility in the pecuniary domain leads to an excessive allocation of time to pecuniary goals at the expense of nonpecuniary goals, such as family life and health, and reduces well-being. There is need to devise policies that will yield better-informed individual preferences, and thereby increase individual and societal subjective well-being.

Public Finances and Long-Term Growth in Europe - Evidence from a Panel Data Analysis

Abstract: In Lisbon the European Council proclaimed a European growth strategy. It considers an average economic "growth rate of around 3 percent as a realistic prospect for the coming years" and assigns public finances an important role in the process of achieving this goal. This paper addresses the question whether we can find empirical evidence for European countries that public finance reform affects trend growth. Focusing on time series patterns, we investigate whether there have been persistent shifts or trends in economic growth and fiscal variables over the last 40 years. In addition, we estimate a distributed lag model, which 1) indicates that government consumption and transfers negatively affect growth rates of GDP per capita over the business cycle, while public investment has a positive impact, and 2) provides robust evidence that distortionary taxation affects growth in the medium-term through its impact on the accumulation of private physical capital.

Measuring the Well-Being of the Poor Using Income and Consumption

Abstract: We examine the relative merits of consumption and income as measures of the material well-being of the poor. Consumption offers several advantages over income because consumption is a more direct measure of well-being than income and is less subject to underreporting bias. Measurement problems with income are problematic for analyses of changes in well-being of the poor because the biases appear to have changed over time and are correlated with government policies. On the other hand, income is often easier to report and is available for much larger samples, providing greater power to test hypotheses. We begin by considering the conceptual and pragmatic reasons why consumption might be better or worse than income. Then, we employ several empirical strategies to examine the quality of income and consumption data. First, we compare income and consumption reports for those with few resources, as well as their assets and liabilities, to examine measurement errors and under-reporting. Second, we examine other evidence on the internal consistency of reports of low income or consumption. Third, we compare how well micro-data in standard datasets weight up to match aggregates for classes of income and consumption that are especially important for low-resource families. Fourth, we validate income and consumption measures by comparing them to other measures of hardship or material well-being. Although the evidence tends to favor consumption measures, our analyses suggest that both measures should be used to assess the material well-being of the poor.

Energy use and energy access in relation to poverty

Abstract: This paper looks at how access and use of energy are related to poverty. Different approaches to how energy poverty might be measured are presented. One approach involves the estimation of basic energy needs of a household based on engineering calculations and certain normative assumptions. The second looks at poverty in relation to access to different energy sources. An alternative approach is then provided that combines the elements of access and consumption of energy in order to examine how these relate to the well being of households. Examining well being in terms of both these dimensions – access to clean and efficient energy sources; and sufficiency in terms of the quantity of energy consumed, could be an important complementary measure of poverty. The consumption dimension includes non-commercial consumption and thus includes self-produced and bartered products. The access dimension can serve as an indicator of the extent of market integration, or more specifically, as an indicator of the opportunity to join the modern market economy.

Consumption and Environmental Degradation: A Cross-National Analysis of the Ecological Footprint

Abstract: Consumption and concomitant environmental degradation are among the most pressing global issues confronting us today. This research argues that these problems are embedded within the context of hierarchical inter-state relationships and intra-national characteristics in the modern world-system. Using cross-national comparisons among 208 countries, I construct a recursive indirect effects model to estimate the direct, indirect, and total effects of world-system position, domestic inequality, urbanization, and literacy rates on a comprehensive indicator of per capita consumption of natural resources: the ecological footprint. I find that world-system position has the strongest positive total effect on per capita consumption, followed by urbanization and literacy rates. Domestic inequality, by contrast, has a strong negative total effect on per capita consumption. In a second analysis, I examine the extent to which cross-national variation of consumption levels occurs within different zones of the world-system. I find and discuss two outliers in the core and one in the periphery, and a relatively high level of variation in the semiperiphery.

Sustainable consumption: consumption, consumers and the commodity discourse

Abstract: This paper examines the concept of sustainable consumption by focusing on the consumption habits of Irish consumers. The key research findings fit into three broad and interrelated categories. Firstly, whilst recent sustainable consumption literature suggests that new research should focus on the issue of consumption, in and of itself, our study shows that consumers themselves view environmental problems from a supply and not a demand perspective. They focus on issues such as recycling and waste and not consumption itself. Secondly, our study shows that consumers have green opinions about very diverse issues and these are directly related to the individuals' lifestyles. Finally, our research shows that “material green” consumers are buying into a particular image in their consumption practices. This is very much connected to the meanings of their consumption that are derived from the communication value they attach to commodities. As such our study provides support for earlier conceptual research which su...