Testing the Barten Model of Economies of Scale in Household Consumption: Toward Resolving a Paradox of Deaton and Paxson

Abstract

In this paper, we study an important paradox of Deaton and Paxson (1998): Using the Barten model of economies of scale, Deaton and Paxson predict food share should increase as household size rises at the same per capita expenditure, while their empirical evidence shows the opposite. This paradox has important implications in measuring poverty and inequality. Consistent with predictions of the Barten model, we show food share in food and a more public good(housing) increases with family size, and the elasticity of the share of food with respect to family size is larger for poorer households. Therefore, the Deaton-Paxson Paradox cannot simply be due to an incorrect theoretical model. We provide evidence that food preparation time may be important in understanding this puzzle.

Keywords: Household Consumption, Economies of Scale

JEL Classification: D1, E2