The theory and measurement of consumer behaviour

352 Pages·2014·7.67 MB·English

Essays in
The theory and measurement of
consumer behaviour

Essays in
The theory and measurement of
consumer behaviour
in honour of
Sir Richard Stone
Edited by
ANGUS DEATON
CAMBRIDGE UNIVERSITY PRESS
Cambridge
London New York New Rochelle
Melbourne Sydney
CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521225656
Cambridge University Press 1981
©
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 1981
This digitally printed version 2008
A catalogue record for this publication is available from the British Library
ISBN 978-0-521-22565-6 hardback
ISBN 978-0-521-06755-3 paperback
Contents
Foreword vii
page
List of contributors viii
Part one: The analysis of commodity demands
Introduction 2
Some Engel curves
W. M. GORMAN 7
2 Suggestions towards freeing systems of demand functions from
a strait-jacket
L. JOHANSEN 31
3 Theoretical and empirical approaches to consumer demand
under rationing
A. S. DEATON 55
4 The independence transformation: a review and some further
explorations
H. THEIL AND K. LAITINEN 73
5 The analysis of consumption and demand in the USSR
N. P. FEDORENKO AND N. J. RIMASHEVSKAYA 113
Part two: The theory of index numbers
Introduction 130
6 On the constructability of consistent price indices between sev-
eral periods simultaneously
S. N. AFRIAT 133
7 The economic theory of index numbers: a survey
W. E. DIEWERT 163
v
vi CONTENTS
Part three: The consumptfon function and durable goods
Introduction 210
8 Testing neoclassical models of the demand for consumer dura­
bles
J. MUELLBAUER 213
9 Liquidity and inflation effects on consumers' expenditure
D. F. HENDRY AND T. VON UNGERN-
STERNBERG 237
Part four: Other aspects: fertility and labour supply
Introduction 262
10 On labour supply and commodity demands
A. B. ATKINSON AND N. H. STERN 265
11 Child spacing and numbers: an empirical analysis
M. NERLOVE AND A. RAZIN 297
Bibliography of Sir Richard Stone's works 1936-79 325
Index of names 338
Subject index 341
Foreword
Sir Richard Stone retired from his chair in Cambridge in September 1980.
To mark the occasion, this volume has been written in his honour. It is not
afestschrift after the usual mould, where friends and colleagues contrib­
ute a diverse collection of papers. Sir Richard's achievements have been
too broad and his disciples too many to permit a single collection along
such lines. Instead, I have taken one single field in which Sir Richard has
been preeminent, and attempted to bring together a first-rate collection of
papers in that field. Many of the authors are close friends or ex-colleagues
of Sir Richard's, but several have had little more than professional con­
tact. However, all are indebted to him through his scientific work, and in
contributing to this volume are united in their wish to honour him and to
acknowledge their indebtedness. In editing the volume it is my hope that
the best way of honouring Sir Richard and commemorating his retirement
is the preparation of a volume of the best current work in the economics
of consumer behaviour. The papers published here are representative of a
wide range of contemporary research in the field and only a few important
topics are not covered at some point. They provide a good indication not
only of the state of the art but also of the extraordinary area over which
Sir Richard's own work has been an influence.
ANGUS DEATON
Princeton, October
1979
VII
Contributors
S. N. AFRIAT University of Ottawa
A. B. ATKINSON London School of
Economics
A. S. DEATON University of Bristol and
Princeton University
W. E. DIEWERT University of British
Columbia
N. P. FEDORENKO Central Institute for
Mathematical Economics,
Moscow
W. M. GORMAN London School of
Economics and Johns
Hopkins University
D. F. HENDRY London School of
Economics
L. JOHANSEN Institute of Economics,
University of Oslo
K. LAITINEN University of Chicago
J. MUELLBAUER Birkbeck College, London
M. NERLOVE Northwestern University
A. RAZIN University of Tel-Aviv
N. J. RIMASHEVSKA YA Central Institute for
Mathematical Economics,
Moscow
N. H. STERN University of Warwick
H. THEIL University of Chicago
THOMAS VON UNGERN-STERNBERG University of Bonn
viii
PART ONE
The analysis of commodity demands
Introduction to part one
In a volume dedicated to Sir Richard Stone, it is appropriate that first
consideration should be given to the theory and measurement of
commodity demands. Sir Richard's own great monograph, The
Measurement of Consumers' Expenditure and Behaviour in the United
Kingdom [51]* retains its classic status in applied econometrics to this
day. The research programme established there and in the 1954 Economic
Journal article [ 48] on the linear expenditure system is still flourishing and
the five papers in part one represent several aspects of it.
The first set of topics concern the appropriate choice of functional form
for empirical demand equations. In [51], Sir Richard and his coworkers
adopted a largely pragmatic approach using a loglinear constant elasticity
form. This has great advantages in computation and allows a much more
flexible research strategy than is possible with more complex non-linear
equations in which all commodities are dealt with simultaneously.
However, as has been known for a long time, loglinear demand functions
for all commodities are inconsistent with utility theory in that they cannot
permit the predicted demands to add up to the predetermined sum of
expenditures. This reflects a quite general problem: how do we choose
functional forms which are convenient to work with, which allow the easy
incorporation of such information as we possess about the nature of
individual demands, and which are consistent with the theory? The first
two papers in this section are addressed to that question.
The paper by Terence Gorman investigates a generalization of perhaps
the most obvious type of functional form for Engel curves, a polynominal
structure with expenditures related to powers of income. Important
examples of this are well-known: linear Erigel curves, characterized by
the so-called 'Gorman polar form', (Gorman, 1961) the class to which
-
the linear expenditure system belongs, as well as the quadratic
expenditure system more recently described and estimated in Pollak and
Wales (1978) and Howe, Pollak and Wales (1980). In his paper, Gorman
proves a remarkable result: essentially, the quadratic case is as general as
we can go. Demand equations with more than three terms in income (e.g.
* References given by numbers in brackets are to Sir Richard's own publications which are
contained in a separate bibliography at the end of the book. Other citations are given by
author and date, e.g., Gorman (1%1).
2