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Household Demand for Tobacco: Identifying Reasons for Non-Purchases


  • Kimhi, Ayal


This paper provides a framework for identifying reasons for non-purchase of a commodity on statistical grounds without having explicit information about these reasons. The traditional corner solution has frequently been modeled in the literature using the Tobit model. Two generalizations of the Tobit model are the double-hurdle model and the purchase-infrequency model. This study proposes an integrated approach which nests both double-hurdle and purchase-infrequency as special cases, and hence enables a distinction between these reasons for non-purchase. Although previous studies have compared the performance of these models by a non-nested test, the integrated approach enables a simple and probably stronger nested test. A set of Monte-Carlo simulations shows that the integrated model is much more robust to mis-specification than any of the two simpler models, and that the non-nested test has relatively low power. In the empirical application, an Engel curve for tobacco is estimated using Israeli family expenditure data, utilizing all of the above methods. The results confirm the usefulness of the integrated approach: whereas both the double-hurdle and purchase-infrequency models were rejected in favor of the integrated model using the nested likelihood-ratio test, the non-nested test was not able to reject either one of the nested models in favor of the other. The findings show that 996 of the sample households are censored due to the second hurdle and another 7% due to infrequency of purchase. The conventional corner solution (Tobit-type censoring) occurs in 40% of the households. A total of 60% of the sample households did not purchase tobacco during the survey's 2-week period, and this was predicted correctly by the integrated model for 60% of these. The coefficients of log total expenditure in the tobacco-share equation estimated by the different models are all negative. However, relative to the integrated model, the Tobit coefficient is largely underestimated and the double-hurdle coefficient is largely overestimated (both in absolute values). Other socioeconomic explanatory variables are shown to affect the different equations (second-hurdle, purchase, and consumption) in different ways.

Suggested Citation

  • Kimhi, Ayal, 1996. "Household Demand for Tobacco: Identifying Reasons for Non-Purchases," Working Papers 232693, Hebrew University of Jerusalem, Center for Agricultural Economic Research.
  • Handle: RePEc:ags:huaewp:232693
    DOI: 10.22004/ag.econ.232693

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    1. repec:adr:anecst:y:1994:i:36:p:06 is not listed on IDEAS
    2. repec:adr:anecst:y:1994:i:36 is not listed on IDEAS
    3. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
    4. M. Burton & M. Tomlinson & T. Young, 1994. "Consumers‘ Decisions Whether Or Not To Purchase Meat: A Double Hurdle Analysis Of Single Adult Households," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(2), pages 202-212, May.
    5. Guy Lacroix & Pierre Frechette, 1994. "A Microeconomic Model of Female Labour Supply in the Presence of Unemployment and Underemployment," Annals of Economics and Statistics, GENES, issue 36, pages 113-131.
    6. Noel Blisard & James Blaylock, 1993. "Distinguishing between Market Participation and Infrequency of Purchase Models of Butter Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 314-320.
    7. Jones, Andrew M, 1989. "A Double-Hurdle Model of Cigarette Consumption," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(1), pages 23-39, Jan.-Mar..
    8. Kay, J. A. & Keen, M. J. & Morris, C. N., 1984. "Estimating consumption from expenditure data," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 169-181.
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