Retrospectives: Engel Curves
AbstractEngel curves describe how household expenditure on particular goods or services depends on household income. German statistician Ernst Engel (1821-1896) was the first to investigate this relationship systematically in an article published about 150 years ago. The best-known single result from the article is "Engel's law," which states that the poorer a family is, the larger the budget share it spends on nourishment. We revisit Engel's article, including its context and the mechanics of the argument. Because the article was completed a few decades before linear regression techniques were established and income effects were incorporated into standard consumer theory, Engel was forced to develop his own approach to analyzing household expenditure patterns. We find his work contains some interesting features in juxtaposition to both the modern and classical literature. For example, Engel's way of estimating the expenditure-income relationship resembles a data-fitting technique called the "regressogram" that is nonparametric -- in that no functional form is specified before the estimation. Moreover, Engel introduced a way of categorizing household expenditures in which expenditures on commodities that served the same purpose by satisfying the same underlying "want" were grouped together. This procedure enabled Engel to discuss the welfare implications of his results in terms of the Smithian notion that individual welfare is related to the satisfaction of wants. At the same time, he avoided making a priori assumptions about which specific goods were necessities, assumptions which were made by many classical economists like Adam Smith. Finally, we offer a few thoughts about some modern literature that builds on Engel's research.
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Bibliographic InfoArticle provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 24 (2010)
Issue (Month): 1 (Winter)
Find related papers by JEL classification:
- B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Stockholm School)
- B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical
- D10 - Microeconomics - - Household Behavior - - - General
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- Nicholas Oulton, 2011. "The Wealth and Poverty of Nations: True PPPs for 141 Countries," CEP Discussion Papers dp1080, Centre for Economic Performance, LSE.
- Andreas Chai & Alessio Moneta, 2012.
"Back to Engel? Some evidence for the hierarchy of needs,"
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- Andreas Chai & Alessio Moneta, 2011. "Back to Engel? Some evidence for the hierarchy of needs," Papers on Economics and Evolution 2011-13, Max Planck Institute of Economics, Evolutionary Economics Group.
- Leonhard K. Lades, 2012. "The impact of differential satiation dynamics on changing consumer behavior, wellbeing, and innovative activity," Papers on Economics and Evolution 2012-16, Max Planck Institute of Economics, Evolutionary Economics Group.
- Wolfhard Kaus, 2012. "Beyond Engel s Law - Pursuing an Engelian Approach to Welfare A Cross Country Analysis," Jena Economic Research Papers 2012-028, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Ulrich Witt, 2011. "Sustainability and the Problem of Consumption," Papers on Economics and Evolution 2011-16, Max Planck Institute of Economics, Evolutionary Economics Group.
- Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.
- Matteo Barigozzi & Alessio Moneta, 2012. "Identifying the Independent Sources of Consumption Variation," LEM Papers Series 2012/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Bjarne Jensen & Paul Boer & Jan Daal & Peter Jensen, 2011. "Global restrictions on the parameters of the CDES indirect utility function," Journal of Economics, Springer, vol. 102(3), pages 217-235, April.
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