Demand Threshold, Zero Expenditure and Hierarchical Model of Consumer Demand

28 Pages Posted: 19 Jan 2009

See all articles by Nachiketa Chattopadhyay

Nachiketa Chattopadhyay

Indian Statistical Institute, New Delhi

Amita Majumder

Indian Statistical Institute, Kolkata

Dipankor Coondoo

Indian Statistical Institute, New Delhi - Economic Research Unit

Abstract

Consumer expenditure surveys often show households reporting zero consumption of some commodities. Three reasons for this are recognized in the literature: (i) infrequency of purchase, (ii) a strong brand preference for differentiated products and (iii) misreporting. However, sometimes the number of households reporting zero consumption is seen to decline with income. To capture this phenomenon, which does not fall into any of the categories mentioned above, we propose a hierarchical preference structure and identify a class of recursive utility functions representing this structure. An empirical illustration based on Indian consumer expenditure data is provided.

Suggested Citation

Chattopadhyay, Nachiketa and Majumder, Amita and Coondoo, Dipankor, Demand Threshold, Zero Expenditure and Hierarchical Model of Consumer Demand. Metroeconomica, Vol. 60, Issue 1, pp. 91-118, February 2009, Available at SSRN: https://ssrn.com/abstract=1330211 or http://dx.doi.org/10.1111/j.1467-999X.2008.00323.x

Nachiketa Chattopadhyay (Contact Author)

Indian Statistical Institute, New Delhi ( email )

7 S. J. S. Sansanwal Marg
New Delhi, 110016
India

Amita Majumder

Indian Statistical Institute, Kolkata ( email )

203 B. T. Road
Kolkata, 700 035
India
+91--33-25752610 (Phone)

HOME PAGE: http://www.isical.ac.in/~eru/amita.html

Dipankor Coondoo

Indian Statistical Institute, New Delhi - Economic Research Unit ( email )

203 B. T. Road
Calcutta, 700 035
India

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