Individual versus Aggregate Income Elasticities for Heterogeneous Populations
AbstractThis paper deals with different concepts of income elasticities of demand for a heterogenous population and the relationship between individual and aggregate elasticities is analyzed. In general, the aggregate elasticity is not equal to the mean of individual elasticities. The difference depends on the heterogeneity of the population and is quantified by a covariance term. Sign and magnitude of this term are determined by an empirical analysis based on the U.K. Family Expenditure Survey. It is shown that the relevant quantities can be identified from cross-section data and, without imposing restrictive structural assumptions, can be estimated by nonparametric techniques. It turns out that the aggregate elasticity significantly overestimates the mean of individual elasticities for many commodity groups.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse13_2007.
Date of creation: Aug 2007
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household demand; aggregation; heterogeneity; nonparametric methods;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
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