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Economies of Scale in the Household: Puzzles and Patterns from the American Past

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Trevon D. Logan

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Abstract

Household economies of scale arise when households with multiple members share public goods, making larger households better off at lower per capita expenditures. While estimates of household economies of scale are critical for measuring income and living standards, we do not know how these scale economies change over time. I use American household expenditure surveys to produce the first comparable historical estimates of household scale economies. I find that scale economies changed significantly from 1888 to 1935 for all expenditure categories considered (food, clothing, entertainment, and housing), but not all trends in scale economies are consistent with theoretical predictions. I use these historical estimates of household scale economies to resolve several theoretical and empirical puzzles in the literature. I find that existing explanations for puzzles in the household economies of scale literature do not hold in the past. As such, our notions about household economies of scale must be reassessed in light of this historical evidence.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13869.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13869

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
I3 - Health, Education, and Welfare - - Welfare and Poverty
J1 - Labor and Demographic Economics - - Demographic Economics
N3 - Economic History - - Labor and Consumers, Demography, Education, Income, and Wealth

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  1. Reuben Gronau & Daniel S. Hamermesh, 2006. "Time Vs. Goods: The Value Of Measuring Household Production Technologies," Review of Income and Wealth, Blackwell Publishing, vol. 52(1), pages 1-16, 03. [Downloadable!] (restricted)
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  2. Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-51, November. [Downloadable!] (restricted)
  3. Trevon D. Logan, 2005. "The Transformation of Hunger: The Demand for Calories Past and Present," NBER Working Papers 11754, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Daniel Hamermesh & Reuben Gronau, 2007. "The Demand for Variety: A Household Production Perspective," IZA Discussion Papers 2767, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Pollak, Robert A & Wales, Terence J, 1980. "Comparison of the Quadratic Expenditure System and Translog Demand Systems with Alternative Specifications of Demographic Effects," Econometrica, Econometric Society, vol. 48(3), pages 595-612, April. [Downloadable!] (restricted)
  6. Nelson, Julie A, 1988. "Household Economies of Scale in Consumption: Theory and Evidence," Econometrica, Econometric Society, vol. 56(6), pages 1301-14, November. [Downloadable!] (restricted)
  7. Nicholson, J L, 1976. "Appraisal of Different Methods of Estimating Equivalence Scales and Their Results," Review of Income and Wealth, Blackwell Publishing, vol. 22(1), pages 1-11, March.
  8. Gibson, John, 2002. " Why Does the Engel Method Work? Food Demand, Economies of Size and Household Survey Methods," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(4), pages 341-59, September. [Downloadable!] (restricted)
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  9. Logan, Trevon D., 2006. "Nutrition and Well-Being in the Late Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 66(02), pages 313-341, June. [Downloadable!]
  10. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 109-133, 01. [Downloadable!] (restricted)
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  11. Yatchew, A., 1997. "An elementary estimator of the partial linear model," Economics Letters, Elsevier, vol. 57(2), pages 135-143, December. [Downloadable!] (restricted)
  12. Richard W. Blundell & Martin Browning & Ian A. Crawford, 2003. "Nonparametric Engel Curves and Revealed Preference," Econometrica, Econometric Society, vol. 71(1), pages 205-240, January. [Downloadable!] (restricted)
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  13. Dora L. Costa, 1999. "American Living Standards: Evidence from Recreational Expenditures," NBER Working Papers 7148, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Angus Deaton & Christina Paxson, 1998. "Economies of Scale, Household Size, and the Demand for Food," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 897-930, October. [Downloadable!] (restricted)
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  15. John Gibson & Bonggeun Kim, 2007. "Measurement Error in Recall Surveys and the Relationship between Household Size and Food Demand," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(2), pages 473-489, 05. [Downloadable!] (restricted)
  16. Li Gan & Victoria Vernon, 2003. "Testing the Barten Model of Economies of Scale in Household Consumption: Toward Resolving a Paradox of Deaton and Paxson," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1361-1377, December. [Downloadable!] (restricted)
  17. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June. [Downloadable!] (restricted)
  18. Angus Deaton & Christina Paxson, 2003. "Engel's What? A Response to Gan and Vernon," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1378-1381, December. [Downloadable!] (restricted)
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