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

  • Trevon D. Logan

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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Publication status: published as Trevon D. Logan, 2011. "Economies Of Scale In The Household: Puzzles And Patterns From The American Past," Economic Inquiry, Western Economic Association International, vol. 49(4), pages 1008-1028, October.
Handle: RePEc:nbr:nberwo:13869
Note: DAE
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  1. 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.
  2. Gardes, F. & Starzec, C., 2000. "Economies of Scale and Food Consumption : a Reappraisal of the Deaton-Paxson Paradox," Papiers d'Economie Mathématique et Applications 2000.08, Université Panthéon-Sorbonne (Paris 1).
  3. Muellbauer, John, 1977. "Testing the Barten Model of Household Composition Effects and the Cost of Children," Economic Journal, Royal Economic Society, vol. 87(347), pages 460-87, September.
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  7. Reuben Gronau & Daniel S. Hamermesh, 2001. "The Demand for Variety: A Household Production Perspective," NBER Working Papers 8509, National Bureau of Economic Research, Inc.
  8. Lewbel, Arthur, 1985. "A Unified Approach to Incorporating Demographic or Other Effects into Demand Systems," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 1-18, January.
  9. Deaton, A. & Paxson, C., 1997. "Economies of Scale, Household Size, and the Demand for Food," Papers 178, Princeton, Woodrow Wilson School - Development Studies.
  10. Reuben Gronau & Daniel S. Hamermesh, 2003. "Time Vs. Goods: The Value of Measuring Household Production Technologies," NBER Working Papers 9650, National Bureau of Economic Research, Inc.
  11. J. L. Nicholson, 1976. "Appraisal Of Different Methods Of Estimating Equivalence Scales And Their Results," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 22(1), pages 1-11, 03.
  12. 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.
  13. 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.
  14. John Gibson, 2002. "Why Does the Engel Method Work? Food Demand, Economies of Size and Household Survey Methods," Working Papers in Economics 02/02, University of Waikato, Department of Economics.
  15. Yatchew, A., 1997. "An elementary estimator of the partial linear model," Economics Letters, Elsevier, vol. 57(2), pages 135-143, December.
  16. Logan, Trevon D., 2009. "The Transformation of Hunger: The Demand for Calories Past and Present," The Journal of Economic History, Cambridge University Press, vol. 69(02), pages 388-408, June.
  17. Nelson, Julie A, 1988. "Household Economies of Scale in Consumption: Theory and Evidence," Econometrica, Econometric Society, vol. 56(6), pages 1301-14, November.
  18. Victoria Vernon, 2004. "Food Expenditure, Food Preparation Time and Household Economies of Scale," Labor and Demography 0412005, EconWPA.
  19. Pollak, Robert A & Wales, Terence J, 1979. "Welfare Comparisons and Equivalence Scales," American Economic Review, American Economic Association, vol. 69(2), pages 216-21, May.
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  21. 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.
  22. Dora L. Costa, 1999. "American Living Standards: Evidence from Recreational Expenditures," NBER Working Papers 7148, National Bureau of Economic Research, Inc.
  23. 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.
  24. John Gibson & Bonggeun Kim, 2007. "Measurement Error in Recall Surveys and the Relationship between Household Size and Food Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 473-489.
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