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The Utility Tree--A Correction and Further Appraisal
... (These connections were all explored slightly later, from a marketing standpoint, by Ratchford (1975), in a paper that also refers to NC&CB.) Such referees would also have expected that someone with the mathematical skills that Ironmonger displayed would show how his analysis related to slightly earlier formal work on utility trees and (additively) separable utility functions by Strotz (1957Strotz ( , 1959 and Gorman (1959) and Theil's (1967, 276-80) preference independence transformation (whereby independent marginal utilities of goods might be viewed as reflecting separate 'wants'). Expert referees might have advised Ironmonger to try to obtain a copy of Gorman's legendary mimeographed (1956a) paper, on measuring quality differences. ...
... Lancaster (1976) also attempted to deflect interest from Ironmonger's work by suggesting that, to the extent that consumers seem not to consider all their wants simultaneously, it is better to think of them as having preference systems that are compartmentalized into groups of characteristics that pertain to particular types of products (e.g. food, clothing), rather as in Strotz's (1957Strotz's ( , 1959 notion of a utility tree. Lancaster contended that, within each group, consumers make trade-offs in the conventional manner. ...
This paper explores the origins, contributions, limitations, and impact of Duncan Ironmonger’s book New Commodities and Consumer Behaviour (published in 1972), and its similarities with, and differences from, Kelvin Lancaster’s ‘new approach’ to consumer behaviour. It does this with the aid of material from an interview given by Ironmonger to one of the authors in 2015, reviews of his book, its citation details, and a re-reading of the book in light of the interview. It argues that there are substantial differences between the analyses offered by Ironmonger and Lancaster and that, despite them both offering models of choice focused on product attributes, their methods were profoundly different. The paper concludes by considering lessons of their different publication strategies, and their different impacts, for early-career researchers.
... Examples include Chipman [I], Rader [14], Debreu [2], Sonnenschein [17] and Richter [15]. The latter category includes investigations of the demand functions arising from specific utility functions (e.g., Wegge,22), of self-dual preference orderings [Houthakker,71 and, perhaps most prominently, of separable utility functions [Strotz,19;20;Gorman,5; Frisch, 3; Houthakker, 6; Sono, 18; Pearce, 10; 11;Goldman and Uzawa, 41. ...
... We denote the common values of these ratios by I',, = I',,. 20 Thus, if the utility function is a tree, there exist r's such that ...
... In the second stage, she decides separately for each good category how to allocate her category budget from the first stage across the individual goods belonging to that category. Such a budgeting procedure is generally admissibile if and only if the utility function is additively separable across good categories (Gorman, 1959;Strotz, 1957Strotz, , 1959. Thus, akin to Blow and Crawford (2018)'s definition of boundedly rational mental accounting, additive separability of the narrow preference representation implies that a narrow bracketer can be interpreted as using the described budgeting procedure although her broad preferences do not allow it. ...
Kapitel 1: Im Rahmen des Erwartungsnutzenmodells leite ich ein theoretisches Modell von choice bracketing aus zwei verhaltensökonomischen Axiomen ab. Das erste etabliert einen direkten Zusammenhang zwischen narrow bracketing und correlation neglect. Das zweite identifiziert den Referenzpunkt als den Ort, an dem broad und narrow Präferenzen miteinander verbunden sind. In meinem Modell ist der narrow bracketer durch die Unfähigkeit, Veränderungen vom Referenzpunkt in unterschiedlichen Dimensionen gleichzeitig zu verarbeiten, charakterisiert. Kapitel 2: Warum geben Menschen, wenn man sie fragt, präferieren aber, nicht gefragt zu werden, und nehmen sogar, wenn sich die Gelegenheit ergibt? Wir zeigen, dass Axiome wie Separabilität, narrow bracketing, und scaling invariance diese scheinbar widersprüchlichen Beobachtungen vorhersagen. Insbesondere implizieren diese Axiome, dass die Interdependenz von Präferenzen (“Altruismus”) ein Ergebnis des Interesses für das Wohlbefinden anderer im Gegensatz zu ihren bloßen Auszahlungen ist. Hierbei wird das Wohlbefinden durch die referenzabhängige Wertfunktion aus der Prospekttheorie erfasst. Kapitel 3: Wir untersuchen, wie sich fake news auf den Informationsfluss zwischen Nachrichtenportalen und ökonomischen Agenten auswirkt. Wir erweitern das klassische cheaptalk- Modell um Unsicherheit über die Präferenzen des sender (Nachrichtenportal). Es gibt zwei Typen von Nachrichtenportalen. Ein fake-news-Portal möchte im Agenten unabhängig vom wahren Zustand eine maximale Erwartung wecken. Ein legitimes Nachrichtenportal möchte die Wahrheit offenbaren. Wir zeigen, dass jedes informative perfekte Bayesianische Gleichgewicht durch einen Schwellenwert charakterisiert ist. Während der Agent alle Zustände unter dem Schwellenwert unterscheiden kann, ist es ihm unmöglich, Zustände über dem Schwellenwert zu unterscheiden.
... Dans ce cadre, la demande de SAEP est posée comme une demande de consommation d'eau potable qui résulterait de la maximisation de l'utilité dérivée des quantités d'eau consommées et d'autres biens, sous contraintes budgétaires, les prix étant fixés par le marché. Afin de tenir compte de la particularité des SAEP qui constituent un service de première nécessité avec peu (voire pas) de substituts, la formulation de la demande en eau est tenue de respecter l'hypothèse de séparabilité implicite entre l'eau du robinet et les autres biens de l'économie (Strotz, 1959). Ainsi, cette demande a été longtemps formulée comme une demande fonction uniquement du prix du service et du revenu du ménage, indépendamment des prix des autres biens. ...
Cette thèse propose une approche économique de la gestion des services d’alimentation en eau potable (SAEP) et de leurs infrastructures à long-terme, afin d’aider les acteurs publics dans leur exercice de décisions d’investissements en biens et/ou services collectifs. La thèse développe une approche basée sur les préférences des usagers en partant de l’hypothèse que leurs préoccupations dépassent aujourd’hui la seule question de disposer de quantités d’eau suffisantes pour leurs propres consommations. Elles s’élargissent en effet à des considérations sociale (l’accès à un service de qualité pour tout le monde) et environnementale (la préservation de la ressource). Organisés autour de 4 chapitres, les travaux menés empruntent différents cadres conceptuels et analytiques relevant de l’économie publique, de l’économie environnementale et de l’économie comportementale. En empruntant le cadre théorique de l’économie des « choix publics », le chapitre 1 modélise les règles de partage de coûts induits par la nécessité du financement du renouvellement des infrastructures par les contributions individuelles des usagers. Pour ce faire, il présente d’abord l’optimum de premier rang, une situation idéale où le planificateur social serait en mesure de fixer la contribution directe de l’ensemble des usagers au renouvellement des infrastructures, quand on a recours à l’hypothèse de séparabilité entre la demande en eau et en infrastructure, et que les agents sont homogènes. Par la suite, le modèle considère l’impact de l’introduction d’une forme d’hétérogénéité des préférences sur les infrastructures – par le basculement d’une partie des usagers vers des techniques alternatives d’approvisionnement en eau. On assiste alors à une perte d’efficacité de l’action publique (sous-optimalité du renouvellement) même quand un transfert des charges incombant aux usagers dits « alternatifs », ayant quitté l’usage des infrastructures collectives, vers les usagers dits « conservateurs » qui vont payer plus, est envisageable. Nous avons enfin étudié la situation où le planificateur social ne serait plus en mesure d’obtenir un consensus social et doit s’appuyer sur les contributions cette fois-ci volontaires des usagers. Dans ce contexte, la présence de phénomène de « passager clandestin » d’une part et les coûts supplémentaires d’information d’autre part diminuent fortement les montants effectifs consentis par les usagers pour le renouvellement des infrastructures. Ces montants sont surtout soutenus par les motivations sociales et altruistes des usagers. Le chapitre 2 de la thèse détaille le cadre conceptuel des analyses empiriques menées, construit autour de la mise en place d’un protocole d’évaluation économique mobilisant la méthode desexpériences de choix discrets, et d’une enquête administrée via un interface web auprès d’un échantillon de résidents du département de la Gironde. Le chapitre 3 analyse les données relatives aux choix de 300 individus ayant répondu à la version du questionnaire pour lequel les scénarios de gestion proposés visaient des performances sur 30 ans. L’estimation successive de modèles logit mixte et de modèles à classes latentes a permis de mettre en évidence que les répondants sont principalement préoccupés par la qualité organoleptique de l’eau et la préservation de la ressource. Ils ont ainsi des préférences pour les deux dimensions de la performance à 30 ans des SAEP, à savoir la dimension technique et la dimension environnementale. Par ailleurs, l’hétérogénéité des préférences peut être expliquée à la fois par les caractéristiques socioéconomiques usuelles des individus (en référence à leur âge et leur positionnement dans le cycle de vie par exemple), leur niveau de revenu, le niveau initial des infrastructures dans leur lieu de résidence, et surtout leur degré d’altruisme. Nous avons distingué sur cet aspect deux manifestations de l’altruisme : l’altruisme global et l’altruisme paternaliste.[...]
... Zayıf ayrılabilirlikle ayrıca fayda ağacı diye bir kavramla karşılaşılmaktadır. Strotz (1957Strotz ( , 1959,tarafından ortaya atılan bu kavram tüketicilerin karar verme aşamasında karşılarına çıkmaktadır. Tüketicinin çoklu adımlar içerisinde karar vermesine imkân tanıyan bu kavramın haricinde ayrıca iki aşamalı bütçeleme diye bir kavram da mevcuttur. ...
... There is some similarity between the approach to consumer stocks and the amounts of their comparative grow~h, as pro~osed here, and the concept of a utility function compnsed of separable subsets of functions each representing clusters of different commodities: Such a function is known as a utility tree, and its conceptual development is associated with Leontief [34], Sono [45], Strotz [49,50], and Gorman [24,25]. 15 item-by-item analysis of consumer choice appears neither theoretically viable nor empirically practical. ...
It is hypothesized that consumers tend to acquire complementary assets at a rate which equates the chance in the cube root of each. Empirical data on annual holdings of consumer stocks are examined for evidence of this relationship. Implications for marketing research are indicated.
... To overcome this difficulty, a multistage budgeting framework is used in this study to model the fish demand of households in Germany. Multistage budgeting is based on the concept of the utility tree pioneered by Strotz (1957Strotz ( , 1959 and Gorman (1959). The usual assumption in the multistage budgeting framework is that the consumer decides on the information of price indices on the expenditure allocation to commodity groups. ...
This paper investigates the performance of the Quadratic Almost Ideal Demand System (QUAIDS) with and without accounting for the consistent two-step estimation for censoring of the dependent variable as well as the use of quality-adjusted prices. The demand systems are estimated for a commodity that has a relatively low consumption level in the German market, fish. Thus, the zero observations are quite high and the need of a correction procedure is more urgent. The results show differences in the applied methods. It turns out that ignoring consistent two-step estimation and quality-adjusted prices leads to less elastic demand estimates.
... Our assumptions are sufficient for two stage budgeting, as introduced by Strotz (1957Strotz ( , 1959 and Gorman (1959). Hence consumers behave as if they were using sequential expenditure allocation. ...
Monetary aggregates have a special role under the “two pillar strategy” of the ECB. Hence, a theoretically consistent measure of monetary aggregates for the European Monetary Union (EMU) is needed. This paper analyzes aggregation over monetary assets for the EMU. We aggregate over the monetary services for the eleven EMU (EMU-11) countries, which include Estonia, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, Netherlands, Slovakia, and Slovenia. We adopt the Divisia monetary aggregation approach, which is consistent with index number theory and microeconomic aggregation theory. The result is a multilateral Divisia monetary aggregate, in accordance with Barnett (J Econ 136(2):457–482, 2007). The multilateral Divisia monetary aggregate for the EMU-11 is found to be more informative and a better signal of economic trends than the corresponding simple sum aggregate. We then analyze substitutability among monetary assets for the EMU-11 within the framework of a representative consumer’s utility function, using Barnett’s (J Bus Econ Stat 1:7–23, 1983) locally flexible functional form, the minflex Laurent indirect utility function. The analysis of elasticities with respect to the asset’s user-cost prices shows that: (i) transaction balances and deposits with agreed maturity are income elastic and (ii) the monetary assets are not good substitutes for each other within the EMU-11. Simple sum monetary aggregation assumes that component assets are perfect substitutes. Hence simple sum aggregation distorts measurement of the monetary aggregate. The ECB provides Divisia monetary aggregates to the Governing Council at its meetings, but not to the public. Our European Divisia monetary aggregates will be expanded and refined, in collaboration with Wenjuan Chen at the Humboldt University of Berlin, to a complete EMU Divisia monetary aggregates database to be supplied to the public by the Center for Financial Stability in New York City.
... The concept of narrow bracketing o¤ers an alternative perspective on this distinction: in our model, illegal evasion is not considered until all gainful avenues for legal avoidance have been exhausted. 1 In this way our paper relates to a literature on two-stage decision making (e.g., Gorman 1959;Strotz 1959;Blackorby et al. 1970). Unlike this literature, however, we do not seek a sequential approach to the joint avoidance/evasion decision that coincides with the outcome that would obtain were the joint decision assumed to be made simultaneously. ...
We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function, the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.
... As such, analyses of this sort tend to focus on a single harvest region, ignoring substitution possibilities from other sources (e.g., Beach and Holt 2001;Holt and Bishop 2002) or summing regional harvests into an aggregate supply thereby assuming away preferences between regions (e.g., Eales et al. 1997;Wong and McLaren 2005). When faced with a large number of commodities analysts estimating direct demands have instead invoked weak separability and used multi-stage budgeting to model consumer choice in a series of steps (Strotz 1959;Gorman 1959;Brown and Heien 1972;Fan et al. 1995;Edgerton 1997). In the first step consumers allocate expenditures among commodity groups and then further divide those expenditures between the elementary commodities in subsequent steps. ...
Like many agricultural commodities, fish and shellfish are highly perishable and producers cannot easily adjust supply in the short run to respond to changes in demand. In these cases it is more appropriate to conduct welfare analysis using inverse demand models that take quantities as given and allow prices to adjust to clear the market. One challenge faced by economists conducting demand analysis is how to limit the number of commodities in the analysis while accounting for the relevant substitutability and complementarity among goods. A common approach in direct demand modeling is to assume weak separability of the utility function and apply a multi-stage budgeting approach. This approach has not, however, been applied to an inverse demand system or the associated welfare analysis. This paper develops a two-stage inverse demand model and derives the total quantity flexibilities which describe how market clearing prices respond to supply changes in other commodity groups. The model provides the means to estimate consumer welfare impacts of an increase in finfish and shellfish harvest from the Chesapeake Bay while recognizing that harvests from other regions are potential substitutes. Comparing the two-stage results with single-stage analysis of the same data shows that ignoring differentiation of harvests from different regions, or the availability of substitutes not affected by a supply shock, can bias welfare estimates.
... Given that consumer economic theory has been developed without taking into account the nature of the alternatives, some extensions have been made such as Strotz (1957Strotz ( , 1959, which analyzes consumer behavior by introducing the concept of "utility tree" (Strotz, 1957, p. 270). Muth (1966) proposes that the goods and services of the market are considered by the consumer as inputs of a domestic production function, whose production is the satisfaction of the consumer needs derived from consuming certain goods or Becker (1965) that extends the traditional theoretical formulation by adding the time constraint, in addition to the budget, to the production function. ...
Within the context of the consumption of goods or services the decisions made by individuals involve the choice between a set of discrete alternatives, such as the choice of mode of transport. The methodology for analyzing the consumer behavior are the models of discrete choice based on the Theory of Random Utility. These models are based on the definition of preferences through a utility function that is maximized. These models also denominated of disaggregated demand derived from the decision of a set of individuals, who are formalized by the application of probabilistic models. The objective of this study is to determine the behavior of the consumer in the choice of a service, namely of transport services and in a short-distance corridor, such as Toledo-Madrid. The Toledo-Madrid corridor is characterized by being short distance, with high speed train available within the choice options to get the airport, along with the bus and the car. And where offers of HST and aircraft services can be proposed as complementary modes. By applying disaggregated transport models with revealed preference survey data and declared preferences, one can determine the most important variables involved in the choice and determine the arrangements for payment of individuals. These payment provisions may condition the use of certain transport policies to promote the use of efficient transportation.
... The concept of narrow bracketing o¤ers an alternative perspective on this distinction: in our model, illegal evasion is not considered until all gainful avenues for legal avoidance have been exhausted. 1 In this way our paper relates to a literature on two-stage decision making (e.g., Gorman 1959;Strotz 1959;Blackorby et al. 1970). Unlike this literature, however, we do not seek a sequential approach to the joint avoidance/evasion decision that coincides with the outcome that would obtain were the joint decision assumed to be made simultaneously. ...
We characterize optimal individual tax evasion and avoidance when taxpayers “narrow bracket” the joint avoidance/evasion decision by exhausting all gainful methods for legal avoidance before choosing whether or not also to evade illegally. We find that (1) evasion is an increasing function of the audit probability when the latter is low enough, yet tax avoidance is always decreasing in the probability of audit; (2) an analogous finding to the so-called Yitzhaki puzzle for evasion also holds for tax avoidance—an increase in the tax rate decreases the level of avoided income and the level of avoided tax; and (3) that, holding constant the expected return to evasion, it is not always the case that the combined loss of reported income due to avoidance and evasion can be stemmed by increasing the fine rate and decreasing the audit probability.
... The concept of narrow bracketing o¤ers an alternative perspective on this distinction: in our model, illegal evasion is not considered until all gainful avenues for legal avoidance have been exhausted. 1 In this way our paper relates to a literature on two-stage decision making (e.g., Gorman 1959;Strotz 1959;Blackorby et al. 1970). Unlike this literature, however, we do not seek a sequential approach to the joint avoidance/evasion decision that coincides with the outcome that would obtain were the joint decision assumed to be made simultaneously. ...
We characterize optimal individual tax evasion and avoidance when taxpayers " narrow bracket " the joint avoidance/evasion decision by exhausting all gainful methods for legal avoidance before choosing whether or not also to evade illegally. We find that (i) evasion is an increasing function of the audit probability when the latter is low enough, yet tax avoidance is always decreasing in the probability of audit; (ii) an analogous finding to the so-called Yitzhaki puzzle for evasion also holds for tax avoidance –an increase in the tax rate decreases the level of avoided income and the level of avoided tax; and (iii) that, holding constant the expected return to evasion, it is not always the case that the combined loss of reported income due to avoidance and evasion can be stemmed by increasing the finene rate and decreasing the audit probability.
... This approach offers an avenue to achieve a high level of disaggregation in a demand system framework in a theoretically sound manner while avoiding the computational complexity of large equation systems. The 'utility tree' proposed by Strotz (1957Strotz ( , 1959 gives a coherent guideline in this regard. The budgeting approach hypothesizes that household decision on the allocation of the available budget for the consumption of given goods proceeds in multiple stages independent of each other. ...
Micronutrient malnutrition is a serious public health problem, especially in developing countries. Hence, evaluating the nutritional impacts of market and policy changes requires more than just a calorie focus. This work extends the traditional perspective and analyzes the effects of income, food price, and sociodemographic developments on vitamin and mineral adequacies at the household level. The author proposes two approaches to estimate income and price elasticities of nutrient consumption and presents a procedure for assessing the nutrition situation in populations based on food consumption data. Using both approaches demand models are applied in two empirical studies with data from rural East Africa and Malawi. Results suggest that the nutritional status is highly income-responsive. Price elasticities are lower in absolute values, albeit with notable differences between nutrients. Policy implications are discussed.
... The International Journal of Human Resource Management 5 labor that minimizes the cost of producing a given quantity of output. See the works of Solow (1955Solow ( -1956, Gorman (1959), Strotz (1959) and Lloyd (1977) for illustrations on utility-maximization and cost-minimization problems solved in two stages. ...
Emiratization is a government policy aimed at increasing the share of native workers in the UAE private sector. A distinguishing feature of Emiratization is the use of employment quotas for native workers so that the policy objective is met. We study the impact of the labor quota and find that its effect on native employment is ambiguous. While an increase in the employment quota for native workers increases the share of native workers, it also reduces the industry's production and employment of labor. The policy implications of the employment quota are significant, and ways to mitigate its negative impact include calibrating an optimal quota to maximize native employment, implementing the quota in industries facing less elastic demand for outputs and in industries where native and expatriate labor are closer substitutes.
... [9] Two-stage demand models have been developed whereby consumers choose to first partition spending allocations to different subgroups and in the second stage choose to allocate spending within the subgroups to individual goods [Strotz, 1957[Strotz, , 1959Pollak, 1969;George and King, 1971;Browning and Meghir, 1991;Alderman and Sahn, 1993]. ...
An alternate travel cost model is applied to an on-site sample to
estimate the value of flat water recreation on the impounded lower Snake
River. Four contiguous reservoirs would be eliminated if the dams are
breached to protect endangered Pacific salmon and steelhead trout. The
empirical method applies truncated negative binomial regression with
adjustment for endogenous stratification. The two-stage decision model
assumes that recreationists allocate their time among work and leisure
prior to deciding among consumer goods. The allocation of time and money
among goods in the second stage is conditional on the predetermined work
time and income. The second stage is a disequilibrium labor market which
also applies if employers set work hours or if recreationists are not in
the labor force. When work time is either predetermined, fixed by
contract, or nonexistent, recreationists must consider separate prices
and budgets for time and money.
... In the present study, energy demand is modeled by a two-stage budgeting model (Gorman, 1959a). 2 In the first stage, the households allocate their total budget between energy and non-energy consumption categories; in the second stage, they distribute energy expenditures between electricity and gas. The two-stage budgeting model has two principal characteristics with respect to household preferences (see also Gorman, 1959b;Strotz, 1957Strotz, , 1959. In the first stage consumer decisions are based on price aggregates for the different consumption categories and not on the individual prices of each good. ...
This paper conducts a comprehensive review of various estimates for natural gas demand responses. We consider a stream of empirical studies that have been conducted after 1950. The purpose of this paper is to provide the full image, synthesize and analyze the published studies in this field from the first experimental study to the beginning of 2019. In this study, we discuss the methods and techniques used, the application area, the variables, and data sources and data size. Most studies have investigated price and income elasticities; many fewer have focused upon demographic variables. This work will be of significant importance for future researchers aiming to analyze the demand for natural gas.
Dans une analyse dynamique, il est logique de supposer que la firme cherche à agir sur son environnement afin de l’aménager dans son propre intérêt. En situation de concurrence imparfaite, l’entreprise dispose de variables de décision qui lui permettent cette action. Cette observation conduit à intégrer la théorie du contrôle optimal à la théorie économique de la firme, en identifiant les variables de décision aux variables de commande.
Notre objectif est de présenter un modèle de comportement dynamique de l’entreprise avec différenciation du produit, suffisamment général pour englober comme cas particulier différentes situations de concurrence.
L’action de la firme sur son environnement peut prendre différentes formes. Nous nous limiterons ici à l’influence sur la demande.
The paper offers a new method of decomposition of GDP and its elements. It is based on the idea that every component can be represented as a combination of a smaller number of aggregates. The proposed method has a range of important theoretical properties that insure its correctness and reproduces the statistics with very high quality. The theoretical reasoning of the procedure is presented, 3-product decomposition is analysed. Decomposition of indicators in both current and fixed prices is presented. The proposed decomposition has a range of advantages compared to earlier procedures. First, it does not link any model products to aggregates, observed in statistics. Second, it decomposes the statistics into a higher number of unobserved products, and these products and their prices can be reasonably interpreted. Finally, the important distinction from earlier procedures in non-linearity in real prices. Apart from that, the paper proposes a method of harmonization of GDP and its elements statistics that is needed to work with these indicators after two recent methodology changes. © 2018 Publishing House of the Higher School of Economics. All Rights Reserved.
We investigate the demand for money and the degree of substitutability among monetary assets in the United States using the generalized Leontief and the Minflex Laurent (ML) models as suggested by Serletis and Shahmoradi (2007). In doing so, we merge the demand systems literature with the recent financial econometrics literature, relaxing the homoskedasticity assumption and instead assuming that the covariance matrix of the errors of flexible demand systems is time-varying. We also pay explicit attention to theoretical regularity, treating the curvature property as a maintained hypothesis. Our findings indicate that only the curvature constrained ML model with a Baba, Engle, Kraft, and Kroner (BEKK) specification for the conditional covariance matrix is able to generate inference consistent with theoretical regularity.
Cet article propose de mesurer l’évolution du coût de la vie à l’aide d’un indice à utilité constante issu de préférences emboîtées mensuellement, afin de rendre compte de substitutions entre les mois d’une même année. Une simulation évalue ce biais de substitution intermensuelle entre 0,02 et 0,1 point, soit une part significative du biais total de substitution compris entre 0,05 et 0,4 point. En pratique, cet article suggère de pondérer l’indice de prix annuel par les dépenses mensuelles de consommation des ménages et de calculer plutôt un indice de Fisher.
The present paper differs from previous works since it is concerned with the conditions under which commodities are grouped in separable utility functions. The conditions are derived theoretically and then tested empirically. This provides a solid basis under which commodities can he properly grouped without employing an a priori reasoning process that could result in misspecification of the utility function. The conditions are derived and tested for three principal types of separable utility functions: utility tree, block additivity, and additivity. In the case of directly additive utility functions, the goods are treated as Hicksian composite commodities rather than specific goods. The general conditions for grouping apply to directly additive functions so that each composite commodity is treated as belonging to a separate subset. The data for commodity expenditure in constant dollars and prices of commodities are taken from The National Income and Product Accounts of the United States, 1929–1965, Statistical Tables, Table 2.6 and Table 8.6 respectively. The conditions necessary for specification of the commodity subsets are derived from the properties of each Separability situation and are empirically tested in an iterative fashion similar to the cochranc‐orcutt autoregressive technique.
In the history of demand analysis two threads, related but separable, can be discerned. These are first the work of economists interested in the discovery of general laws governing the operation of markets, particularly agricultural markets; and second the work of those, originally statisticians, interested in the psychological laws governing what has come to be called consumer preference. This dichotomy continues to characterise the subject. As computing opportunities and skills have expanded, empirical research has produced more sophisticated demand equations while, at the same time, theoretical economists and mathematicians have enormously increased our knowledge of the pure mathematics of preference relations. While these two activities have not always been in balance, the great strength of empirical demand analysis has been the existence of strong theoretical foundations which could be drawn upon or modified as practice demanded. This interplay between the theory and reality has been perhaps more fruitful in this than in any other branch of economics.
This paper presents a development of the transformation semigroup of economic choice automata as a subgroup of the semigroup (monoid) of partial functions defined over the states of a finite state machine. The classes of consistency behavior considered are those rationalized by linear orders, weak orders, quasi-transitive relations and non-rationalizable path independent choice functions. For each of these classes of choice behavior, a particular class of lattice is identified as the action semigroup that drives the automaton. Given these characterizations, several features of the choice behavior are considered. In particular, the simplifying interval property of path independent choice, the importance of the distributive property of quasi-transitive rational choice in reducing the complexity of dynamic choice is addressed. Based on the algebraic structure of semiautomata implementing path independent choice functions it is possible to rank these semiautomata by the mathematical power required to implement a particular class of choice functions. This provides a means for ranking these machines by their “implementation complexity”. Dually, the computational complexity of constructing a semiautomaton that implements a particular class of choice functions is investigated. It is seen that these complexities are inversely related.
In a single commodity setting with changing tastes, an individual's consumption plan can be obtained using naïve or sophisticated choice. We provide two sufficient conditions for when the solutions are unique and agree and the common plan is representable by a non-changing tastes utility. Because the solution is not revised over time, the plan and associated preferences are referred to as being effectively consistent. Afriat-style revealed preference tests are derived. The assumption of effective consistency can mitigate the problems of vulnerability to Dutch Books, non-existence of a competitive equilibrium and the aggregation of heterogeneous agents with changing tastes. The Economic Journal
The cornerstone of all microeconomics, indeed of all questions with an economic content, is choice. To many economists the rigorous development of a theory of choice has been seen as less important than the important results concerning resource allocation which can be derived from it. Possibly this has been because of the need for practical application of the results of theoretical exercises, but the hiding of an explicit choice theory behind the concepts of utility and indifference has often served to confuse and hinder the acceptance and application of the tools of economics to many problems. Yet ultimately economics is not about as abstract an idea as resource allocation, it is about choice, choice of the individual as to what to do, where to go, what to buy, choice of the producer as to what and where to produce and how, choice of the community how to live and so on.
Grundlage der mikroökonomischen Theorie der Konsumentenachfrage ist die Analyse der Haushaltsentscheidungen zur Aufteilung eines gegebenen Ausgabenbetrages auf die verschiedenen Güter des verfügbaren Warenkorbes.
Im folgenden Abschnitt soll nun ergänzend zu dem im vorherigen Kapitel dargestellten funktionsorientierten, die Nachfrage beschreibenden Konzept ein dazu kompatibles der Qualität diskutiert werden. Diese Definition wird die Möglichkeit beinhalten, eine Beschreibung der Aktivitäten der vertikalen Integration aus der Sicht der privaten Institution ‘Haushalt’ durchzuführen, d.h, daß diese Qualitätsdefinition sowohl für Leistungsströme des Marktes als auch für solche, die innerhalb der Haushaltseinheit erzeugt werden, Geltung haben wird.
The purpose of this study is to investigate by econometric methods the influence of changes in prices, advertising and consumer tastes upon the pattern of demand for eight different types of wines and spirits during the 1970s in the United Kingdom.
Relative prices are found to play possibly an important role in the determination of wine products' market shares, but to have been insignificant in the spirits sector.
Relative levels of advertising may affect the pattern of demand between products in the way suggested by Galbraith, but the influence appears to be weak.
Product market shares may be invariant with respect to the size of the total spirits market, although this conclusion is held with least confidence for brandy which appears to grow at a relatively slow rate on average. However, wine product shares do fluctuate with the size of the total demand for wine products.
The disaggregated wine equations would appear to provide a potentially useful framework for detailed demand forecasting. However, the advantages of disaggregated analysis for this purpose are not as pronounced in the case of the spirits sector.
The Demand for Money: Theoretical and Empirical Approaches 2nd Edition by Apostolos Serletis This book provides an account of the existing literature on the demand for money. It shows how the money demand function fits into static and dynamic macroeconomic analyses and discusses the problem of the definition (aggregation) of money. Professor Serletis takes a microeconomic- and aggregation-theoretic approach to the demand for money, presents empirical evidence using recent state-of-the-art econometric methodology, and recognizes the existence of unsolved problems and the need for further developments. New to this Edition •increased coverage of theoretical and empirical approaches to the demand for money, including a new chapter on cross-country evidence •a new chapter on money demand issues and estimation of the welfare cost of inflation using tools from public finance and applied microeconomics •a new chapter on rational expectations macroeconomics and issues such as the Lucas critique, rules versus discretion, and time inconsistency •increased coverage of the univariate and multivariate properties of the money demand variables, nonlinear chaotic dynamics, and self-organized criticality •revised coverage of monetary asset demand systems based on locally and globally flexible functional forms •increased coverage of the econometrics of demand systems highlighting the challenge inherent with achieving both economic and econometric regularity "This new edition of The Demand for Money contains the tools and the direction needed for future productive advances in monetary economics. There is no clearer or more comprehensive road map to the field's "high road" research." -William A. Barnett, Oswald Distinguished Professor of Macroeconomics, University of Kansas, and Editor of the journal, Macroeconomic Dynamics "The second edition contains new theoretical and empirical results on the theory of the demand for money. Serletis expands on the base that he created in his first edition. New results on the estimation of flexible monetary asset demand systems are included in this edition as well as new time series econometric techniques. This book is a significant contribution to macroeconomics, and provides a basis for graduate students from which they can start their own research." -Melvin J. Hinich, Department of Government & Department of Economics, The University of Texas at Austin. © 2007 Springer Science+Business Media, LLC. All rights reserved.
In this paper we aim at measuring the cost-of-living thanks to a constant utility price index derived from monthly nested ces preferences. Such a cost-of-living index (coli) accounts for substitutions across months within a year. A simulation evaluates this form of intertemporal substitution bias between .02 and .1 pp per year, which amounts to an important part of the total substitution bias comprised between .05 and .4 pp. In practice, this paper suggests to weight the annual consumption price index using monthly budget shares and to approximate the cost-of-living with a Fisher index.
This PhD dissertation deals with the economic representation of consumer behavior with regards to their environmental conscience. The particular focus point is the production of household wastes, which is analyzed from a dual point of view: on the one hand as a consequence of consumption activities, and as a specific economic choice activity on the other.
The central problem of this dissertation is thus the following: can the phenomenon “waste” be economically represented as an individual consumption act? The first part of this thesis deals with the environmental sensitivity of consumers in general, and their sensitivity for waste in particular. It is supposed that individuals can integrate the environment in their consumption choices, when buying products on the market: this is defined as continuous environmental rationality.
The second part develops the behavior of an individual that decides to separate its waste. On the basis of a qualitative survey among households, their discourse and actions are analyzed in order to define the behavior of a waste consumer-producer (-recycler). One of the results of our survey is the assumption that when economic agents have an environmental conscience, this latter isn't necessarily translated into consumption choices. The conscience for household wastes, which occur only after the consumption moment, defines a discontinuous environmental rationality. On this basis, we suggest to widen the traditional analytical framework of household consumption.
This article examines the first appearances of the isoquant, a concept that is central to production and supply theory. It appears to have been discovered independently by Bowley, Frisch, Cobb, and Lerner, in that order. Frisch coined the term isoquant. It is possible but not likely that Frisch took the concept from Bowley, and Lerner may have taken it from R. G. D. Allen. The article also discusses why the discovery of the isoquant was not made until more than forty years after that of the indifference curve, when to a modern analyst the isoquant appears isomorphic to the indifference curve and could have been copied straight from utility theory.
Decentralized decision making is consistent if it is executed without cost (i.e., without a loss of output or utility). Consistency requires that the objective function be appropriately structured. In this paper, a hierarchical decision making structure is rationalized by an objective function which combines some of the properties of homothetic separability and asymmetric separability.
Convexity (quasi-convexity) provides the traditional framework to describe optimization models in economics. Hackman and Passy (1988) introduced a generalization od convexity called Projective-convexity (or P-convexity). In this paper, we show that P-convexity provides a natural framework for describing a variety of models (e.g., consumer preference, consumer budgeting, resource allocation, multi-output) which do not adhere to the assumption of convexity.
Throughout his life Hans Linnemann has been concerned with equality and wealth in this world. Rather than travelling with his emergency kit to the poorest and most deprived, Hans took refuge in science, hoping to succeed where direct approaches often fail. But science is not straightforward. As Popper, Kuhn, Lakatos and others teach, science takes many paths — paradigms — that sometimes meet dead ends and sometimes join, having travelled apart for long. One such paradigm is the analysis of gravity, cherished by Hans for its simplicity and its readiness for empirical applications. Although applied already by Carey (1858) the theory can be said to have its roots in the Social Physics School of Zipf (1946), who launched the idea of approaching economic problems with existing models in physics. One of those models was Newton’s theory of gravity, in its simplest form given by
(4.1)
expressing the idea that the gravitational force F with which two bodies attract each other is directly proportional to their masses and inversely proportional to the square of their distance apart. The parameter γ is considered to be constant, viz. 6.67.10−11N(m/kg), whatever the setting of the theory and therefore known as the constant of gravity.
In the classic certainty multiperiod, multigood demand problem, suppose preferences for current and past period consumption are separable from consumption in future periods. Then optimal demands can be determined from the standard two stage budgeting process, where optimal current period demands depend only on current and past prices and current period expenditure. Unfortunately this simplification does not significantly reduce the informational requirements for the decision maker since in general the expenditure is a function of future prices. Recent behavioral evidence strongly suggests that frequently individuals significantly simplify intertemporal choice problems. We derive necessary and sufficient conditions such that the current period's expenditure and hence optimal current demands are independent of future prices. Since this preference property is a special case of separability, it is referred to as myopic separability. One well known special case of myopic separability is log additive (or equivalently Cobb-Douglas) utility. However, this form of utility is overly restrictive, especially given the general aversion of 0055 and 0090 and Lucas (1978) to requiring preferences to be additively separable. Myopic separability requires neither additive separability nor logarithmic period utility. As an application, we derive simple restrictions on equilibrium interest rates which are necessary and sufficient for utility to take the myopic separable form. These conditions are arguably less restrictive than those implied by additively separable preferences.
SUMMARY In this paper we investigate the demand for gasoline in Canada using recent annual expenditure data from the Canadian Survey of Household Spending, over a 13-year period from 1997 to 2009, on three expenditure categories in the transportation sector: gasoline, local transportation, and intercity transportation. In doing so, we use three of the most widely used locally flexible functional forms, the Almost Ideal Demand System (AIDS) of Deaton and Muellbauer (1980), the quadratic AIDS (QUAIDS) of Banks et al. (1997)—an extension of the simple AIDS model that can generate quadratic Engel curves—and the Minflex Laurent model of Barnett (1983), which can also generate quadratic Engel curves. We pay explicit attention to economic regularity, argue that unless regularity is attained by luck, flexible functional forms should always be estimated subject to regularity as suggested by Barnett (2002), and impose local curvature to produce inference consistent with neoclassical microeconomic theory. Our findings indicate that the curvature-constrained Minflex Laurent model is the only model that is able to provide theoretically consistent estimates of the Canadian demand for gasoline. Our estimates show that the own-price elasticity for gasoline demand in Canada is between − 0.738 and − 0.570 —less elastic than previously reported in the literature. Copyright © 2013 John Wiley & Sons, Ltd.
Separability of land from structures is implied in much of the economics of housing research. This research tests for the separation of labor and material inputs from land in the construction of multifamily housing using traditional and AGEM translog cost specifications. Although the calculated and generally inelastic land for labor and land for material elasticities of substitution are suggestive of separability, imposition of separability on the functional forms is rejected—though barely—at the 5% level. The results also indicate robustness of the traditional translog parameter estimates.
This study investigates consumer demand for different meat types in Nigeria from 1961 to 1999, as well as the differentiating impacts across meat types from a Structural Adjustment Program designed to initiate market activity and other structural changes. Results indicate that beef and mutton are more price elastic than pork or poultry. Beef is a luxury good, while both pork and poultry are inelastic and normal goods. Mutton is an inelastic and inferior good. Tests for weak separability indicate that only pork is found not to be separable from other meat types. Pricing and market segmentation strategies are more likely to be successful for Nigerian beef products relative to other meat types.
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