Behavioral Heterogeneity and The Income Effect
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
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.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.harvard.edu/journals/hier
More information through EDIRC
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 references are entirely missing, you can add them using this form.