IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Behavioral Heterogeneity and The Income Effect

Listed author(s):
  • Laurent E. Calvet
  • Etienne Comon

Inspired by the recent literature on aggregation theory, this paper introduces HITS, a semiparametric model of consumer demand that allows for diversity in tastes. The strong variation of budget shares observed aacross income strata can arise from two economic factors: the individual income effect, and taste differences between poor and rich households. Consumer expenditure surveys that report repeated cross-sections do not permit the direct measurement of these two effects, and the paper solves this difficulty by developing a new microeconometric framework. We model consumer demand by a class of Nearly Ideal Demand Systems parameterized by a unique taste parameter. Linear heterogeneity allows GMM estimation of the structural coefficients on an aggregate time series, and the joint density of spending and tastes is recovered from cross-sections by a nonparametric procedure involving a deconvolution. We develop an asymptotic theory and demonstrate the accuracy of the algoriithm by Monte Carlo and bootstsrap simulations. The model is estimated on four size groups using the British Family Expenditure Survey (1968-98). We report a strong correlation between income and tastes, which explains most of the observed varriation of budget shares with income. Unlike some earlier models, this new approach is consistent with both the yearly cross-sections of individual choices and the dynamics of aggregate shares.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1892.

in new window

Date of creation: 2000
Handle: RePEc:fth:harver:1892
Contact details of provider: Postal:
200 Littauer Center, Cambridge, MA 02138

Phone: 617-495-2144
Fax: 617-495-7730
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fth:harver:1892. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.