Consumer Demand in the United States

by Taylor, Lester D.; Houthakker, H. S.

• ISBN13: 9781441905093
• ISBN10: 144190509X
• Edition: 3rd
• Format: Hardcover
• Copyright: 2009-12-30
• Publisher: Springer Verlag

Summary

A classic treatise that defined the field of applied demand analysis, Consumer Demand in the United States: Prices, Income, and Consumption Behavior is now fully updated and expanded for a new generation. Consumption expenditures by households in the United States account for about 70% of America's GDP. The primary focus in this book is on how households adjust these expenditures in response to changes in price and income. Econometric estimates of price and income elasticities are obtained for an exhaustive array of goods and services using data from surveys conducted by the Bureau of Labor Statistics, providing a better understanding of consumer demand. Practical models for forecasting future price and income elasticities are also demonstrated. Fully revised with over a dozen new chapters and appendices, the book revisits the original Taylor-Houthakker models while examining new material as well, such as the use of quantile regression and the stationarity of consumer preference. It also explores the emerging connection between neuroscience and consumer behavior, integrating the economic literature on demand theory with psychology literature. The most comprehensive treatment of the topic to date, this volume will be an essential resource for any researcher, student or professional economist working on consumer behavior or demand theory, as well as investors and policymakers concerned with the impact of economic fluctuations.

Table of Contents

Introduction and Overview	p. 1
Themes and Format of the Book	p. 3
A Reader's Guide to the Study	p. 5
Preliminaries
Demand Theory Under Review	p. 9
Conventional Theory of Consumer Choice	p. 9
Neoclassical Demand Theory as a 19th-century Conservative Energy System	p. 11
Dynamics: Some Preliminaries	p. 13
State-and Flow-Adjustment Models of Consumption	p. 15
A Neuroscience Approach to Consumer Behavior	p. 23
Brain Structure and Consumption Dynamics	p. 25
Assumptions and Terminologies	p. 26
Consumption Dynamics Associated with the Alpha and Beta Brains	p. 29
Opponent Processes and Consumption Dynamics	p. 31
Dynamics Associated with the Gamma Brain	p. 35
From Consumption to Expenditure	p. 37
Consumption/Income Relationships	p. 40
Rationality	p. 41
The Maslovian Needs Hierarchy	p. 42
Physiological Needs	p. 43
Security Needs	p. 43
Community and Affection (Love) Needs	p. 44
Esteem Needs	p. 44
Self-Actualization Need	p. 45
Some Implications of a Hierarchy of Needs	p. 45
Toward Empirical Application	p. 49
Emotions and Consumption Behavior	p. 50
Consumption Behavior and the Pursuit of Happiness	p. 52
Summary and Final Comments	p. 54
Quantile Regression: A Robust Alternative to Least Squares	p. 59
Some Background	p. 59
Quantile Regression	p. 61
Illustrations and Comparison	p. 63
Conclusion	p. 66
Analyses of Data from BLS Consumer Expenditure Surveys
Description of Data Used from the Ongoing BLS Consumer Expenditure Surveys	p. 79
Some Background and History	p. 79
The Current BLS Surveys	p. 81
Data Used in the Present Study	p. 84
Control Variables	p. 85
Combining CES Surveys and ACCRA Prices	p. 85
Levels of Aggregation	p. 86
Stability of U.S. Consumption Expenditure Patterns: 1996-19991	p. 89
Principal Component Analyses of 14 CES Expenditure Categories	p. 8
Interpretation of Results	p. 98
Regression Models for PCs 1 and 2	p. 100
Summary and Conclusions	p. 102
Price and Income Elasticities Estimated from BLS Consumer Expenditure Surveys and ACCRA Price Data: Some Preliminary Results	p. 107
Background and Merging of Data Sets	p. 107
Models Estimated	p. 110
Pooling Across Quarters and Years	p. 115
Effects of Other Variables	p. 118
Equations for Total Consumption Expenditure as Function of After-Tax Income	p. 120
Tests for Heteroscedastic Error Terms	p. 120
Nonlinear Logarithmic Engel Curves	p. 123
Conclusions	p. 125
Estimation of Theoretically Plausible Demand Functions from U.S. Consumer Expenditure Survey Data	p. 127
The Almost Ideal Demand System	p. 128
The Linear Expenditure System	p. 128
The Indirect Addilog Model	p. 131
The Direct Addilog Model	p. 132
Some Technical Obiter Dicta Concerning Estimation	p. 134
Discussion of Results	p. 136
Conclusions	p. 138
An Additive Double-Logarithmic Consumer Demand System	p. 139
An Additive Double-Logarithmic Demand System	p. 139
Application to the CES-ACCRA Data Set for the Four Quarters of 1996	p. 140
Conclusions	p. 144
Quantile Regression Analysis of Asymmetrically Distributed Residuals	p. 147
Quantile Regression Estimation of the Additive Double-Logarithmic Model	p. 147
Price and Total-Expenditure Elasticities	p. 150
Conclusions	p. 152
CES Panel Dynamics: A Discrete-Time Flow-Adjustment Model	p. 157
Double-Logarithmic Flow-Adjustment Model	p. 157
Comparison with Static-Model Elasticities	p. 167
State- vs. Flow-Adjustment Behavior	p. 170
Conclusions	p. 173
Engel Curves for 29 Categories of CES Expenditure	p. 173
An Overview of the Results	p. 202
Size of Estimated Total-Expenditure Elasticities	p. 204
Interpretation of Total-Expenditure Elasticities in Terms of Maslovian Hierarchy of Needs	p. 206
Summary and Conclusions	p. 210
Summary of Cross-Sectional Results	p. 213
Stability of Expenditure Patterns	p. 213
Joining of ACCRA Price Data with CES Expenditure Surveys	p. 214
Summary of Price and Total-Expenditure Elasticities	p. 215
Estimation of Dynamical Cross-Sectional Models	p. 216
Effects of Other Variables	p. 217
Asymmetrical Residuals and Quantile Regression	p. 217
Cross-Price Elasticities	p. 218
Evidence for Maslovian Hierarchical Preferences	p. 218
A First Look at the Relationship between Total Consumption and After-Tax Income	p. 219
Epilogue to the CES Analysis: Update to 2005	p. 219
Looking Ahead	p. 220
Analysis of Time-Series Data from National Income and Product Accounts
Analysis of Time-Series Data on Personal Consumption Expenditures from the U.S. National Income and Product Accounts	p. 227
NIPA PCE Categories	p. 228
Generalization of the Flow-and State-Adjustment Models	p. 231
Remarks	p. 232
Remarks	p. 233
Alternative Estimation Forms for the State-Adjustment and B-C Models	p. 238
Nonlinear Estimation	p. 240
Models Estimated and Statistical Procedures	p. 242
Data	p. 243
Quarterly PCE Models	p. 245
Quarterly Models	p. 246
Total Durable Goods	p. 246
Motor Vehicles and Parts	p. 247
Furniture and household equipment	p. 248
Other Durable Goods	p. 248
Total Non-durable Goods	p. 249
Food	p. 250
Clothing and Shoes	p. 251
Gasoline, Fuel Oil, and Other Energy	p. 251
Other Non-durable Goods	p. 252
Total Services	p. 253
Housing	p. 254
Housing Operation	p. 255
Transportation	p. 257
Medical Care	p. 257
Recreation	p. 258
Other Services	p. 259
Summary of Steady-State Elasticities and Budget Shares	p. 260
A Dynamic Linear Expenditure System	p. 261
Annual PCE Models	p. 267
Food, Tobacco and Alcohol	p. 267
Food Purchased for Off-Premise Consumption	p. 268
Purchased Food and Beverages	p. 269
Tobacco	p. 270
Alcoholic Beverages	p. 272
Clothing, Accessories and Jewelry	p. 273
Shoes	p. 274
Clothing excluding Shoes	p. 274
Cleaning, Storage and Repair of Clothing and Shoes	p. 276
Jewelry and Watches	p. 276
Other clothing	p. 277
Personal Care	p. 277
Toilet Articles and Preparations	p. 277
Barbershops, Beauty Salons and Health Clubs	p. 277
Housing	p. 279
Owner-Occupied Housing	p. 279
Rental Housing	p. 280
Rental Value of Farm Housing	p. 280
Other Housing	p. 281
Housing Operation	p. 281
Furniture, including Mattresses and Bedsprings	p. 282
Household Appliances	p. 282
China, Glassware, Tableware and Utensils	p. 283
Other Durable House Furnishings	p. 284
Semi-Durable House Furnishings	p. 284
Cleaning and Polishing Preparations and Miscellaneous Household, Supplies and Paper Products	p. 285
Stationary and Writing Supplies	p. 285
Household Utilities	p. 286
Domestic Services	p. 290
Other Household Operation	p. 290
Medical Care	p. 291
Drug Preparations and Sundries	p. 291
Ophthalmic Products and Orthopedic Appliances	p. 292
Physicians	p. 292
Dentists	p. 293
Other Professional Services	p. 294
Hospitals and Nursing Homes	p. 295
Health Insurance	p. 298
Personal Business	p. 300
Brokerage Services	p. 300
Bank Service Charges, Trust Services and Safe Deposit Box Rental	p. 301
Services Furnished Without Payment by Financial Intermediaries, Except Life Insurance Carriers	p. 302
Expense of Handling Life Insurance and Pension Plans	p. 302
Legal Services	p. 303
Funeral and Burial Expenses	p. 304
Other Personal Business Services	p. 304
Transportation	p. 305
User-Operated Transportation	p. 305
New Autos	p. 306
Net Purchases of Used Autos	p. 307
Other Motor Vehicles	p. 307
Tires, Tubes, Accessories and Other Parts	p. 308
Repair, Greasing, Washing, Parking, Storage, Rental and Leasing	p. 308
Gasoline and Oil	p. 309
Bridge, Tunnel, Ferry and Road Tolls	p. 310
Transportation Insurance	p. 310
Purchased Local Transportation	p. 311
Intercity Transportation	p. 312
Recreation	p. 315
Books and Maps	p. 315
Magazines, Newspapers and Sheet Music	p. 316
Non-Durable Toys and Sport Supplies	p. 316
Wheel Goods, Sports and Photographic Equipment, Boats and Pleasure Aircraft	p. 317
Video and Audio Goods, including Musical Instruments and Computer Goods	p. 317
Radio and Television Repair	p. 319
Flowers, Seeds and Potted Plants	p. 319
Admissions to Specified Spectator Amusements	p. 320
Clubs and Fraternal Organizations	p. 322
Commercial Participant Amusements	p. 322
Pari-Mutuel Net Receipts	p. 323
Other Recreation	p. 323
Education	p. 324
Higher Education	p. 324
Nursery, Elementary and Secondary Education	p. 324
Other Education	p. 324
Religious and Welfare Activities	p. 326
Foreign Travel and Other, Net	p. 327
U. S. Foreign Travel	p. 327
Expenditures Abroad by U.S. Residents	p. 327
The Access/Usage Framework for Analyzing Telecommunications Demand	p. 329
A Generic Model of Usage Demand	p. 335
A Framework for Estimating Market Demand Functions for New Products and Services	p. 337
Demand Theory and Multi-Part Tariffs	p. 341
Empirical Representation of Rate Schedules	p. 347
Electricity Demand in the 1970s: An Illustration	p. 350
Conclusion	p. 351
Discussion of the Time-Series Results	p. 359
Tabulation of Annual Models	p. 359
Elasticities of Current Study Compared with Those in the 1970 Edition of CDUS	p. 369
Interpretation of Total-Expenditure Elasticities in Terms of Maslovian Hierarchy of Wants	p. 376
Statistical Quality of the Time-Series Models	p. 382
Asymmetry in Residuals?	p. 382
Comparison of Time-Series and Cross-Sectional Elasticities	p. 389
29-Category Level of Aggregation	p. 389
CES-ACCRA 6-Category Level of Aggregation	p. 392
Summary	p. 393
Overall Assessment of CES and PCE Elasticities	p. 395
Summary of Results	p. 396
CES Data	p. 396
NIPA Time-Series Data	p. 397
The Importance of Total-Expenditure Elasticities	p. 399
Assessment of Price Elasticities	p. 403
Total-Expenditure and Price Elasticities and Hierarchical Wants	p. 407
Comparison of Annual and Quarterly Models	p. 409
The Dynamics of Personal Saving	p. 415
B-C Model of Saving	p. 416
Results for Personal Saving from the Flow of Funds Accounts	p. 417
Extending Model to Include Capital Gains	p. 420
Conclusions	p. 423
Miscellaneous Studies of Income Distribution and Weak Axiom of Revealed Preference
The Stationary of Consumer Preferences: Evidence from Twenty Countries	p. 427
Motivation	p. 427
Latent and Revealed Preference in Finite Data Sets	p. 428
What Does Revealed Preference Reveal?	p. 428
The Weak Axiom	p. 429
Dominance	p. 430
Matching and Connectedness	p. 430
The Strong Axiom of Revealed Preference	p. 431
A Test Procedure for the Connected Case	p. 432
Further Analysis of Matching	p. 434
Test Procedure for the Matching Case	p. 435
Data	p. 436
Findings	p. 437
Discussion	p. 439
Concluding Remarks	p. 441
Notes on Thick-Tailed Distributions of Wealth	p. 445
Introduction	p. 445
Background	p. 445
Scenario 1	p. 446
Some Initial Simulations	p. 447
Scenario 2	p. 448
Comments	p. 449
Scenario 3	p. 449
Comments	p. 450
Variations	p. 450
Interpretation of Parameters and Scenarios	p. 453
Law of Pareto Tests	p. 453
Conclusions	p. 462
Conic Distributions of Earned Incomes	p. 465
The Search for Functional Form	p. 465
Specification of the Conic Family of Distributions	p. 467
The General Conic Distribution	p. 468
The Conic-Quadratic Distribution	p. 473
The Conic-Linear Distribution	p. 476
Geometric Aspects	p. 478
The Asymptotes	p. 478
Modes and Inflections	p. 480
Descriptive Statistics	p. 481
The Median	p. 481
The Arithmetic Moments and Gini Coefficient	p. 482
The Logarithmic Moments: Alternative Measures of Inequality	p. 482
The Lorenz Curve	p. 484
Estimation	p. 484
Medianization	p. 486
Comparison with Other Distributions	p. 487
Bias in Maximum Likelihood Estimation	p. 489
Data	p. 489
Empirical Results	p. 490
Discussion	p. 497
Final Evaluation	p. 505
References	p. 509
Index	p. 517
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