Is utility additive? The case of alcohol
The hypothesis of additive utility (or preference independence) is often applied to the demand for broad aggregates. Recent testing provides some evidence favourable to the hypothesis, thus overturning the older results based on the standard asymptotic tests which are seriously biased against the null in small samples. Using data for seven countries and a variety of tests, this paper shows that preference independence also cannot be rejected for more narrowly defined commodities - beer, wine and spirits. The implications of the results for efficient taxation of alcoholic beverages are also explored.
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Volume (Year): 29 (1997)
Issue (Month): 9 ()
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References listed on IDEAS
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- E.A. Selvanathan, 1988.
"Further Results on Aggregation of Differential Demand Equations,"
Economics Discussion / Working Papers
88-26, The University of Western Australia, Department of Economics.
- E. A. Selvanathan, 1991. "Further Results on Aggregation of Differential Demand Equations," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 799-805.
- Clements, Kenneth W & Selvanathan, Saroja, 1994.
"Understanding Consumption Patterns,"
Springer, vol. 19(1), pages 69-110.
- William A. Barnett, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Oxford University Press, vol. 46(1), pages 109-130.
- E.A. Selvanathan, 1991. "A Cross-Country Alcohol Consumption Comparison: An application of the Rotterdam demand system," Economics Discussion / Working Papers 91-04, The University of Western Australia, Department of Economics.
- Selvanathan, Saroja, 1987. "A Monte Carlo test of preference independence," Economics Letters, Elsevier, vol. 25(3), pages 259-261.
- Taylor, Timothy G. & Shonkwiler, J. S. & Theil, Henri, 1986. "Monte Carlo and bootstrap testing of demand homogeneity," Economics Letters, Elsevier, vol. 20(1), pages 55-57.
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