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

U of Texas Dept. of Econ. Working Paper

21 Pages Posted: 11 May 2001

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Victoria Vernon

State University of New York - Empire State College

Date Written: March, 2001

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

Suggested Citation

Gan, Li and Vernon, Victoria, Testing the Barten Model of Economies of Scale in Household Consumption: Toward Resolving a Paradox of Deaton and Paxson (March, 2001). U of Texas Dept. of Econ. Working Paper, Available at SSRN: https://ssrn.com/abstract=267736 or http://dx.doi.org/10.2139/ssrn.267736

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Victoria Vernon

State University of New York - Empire State College ( email )

325 Hudston st, office 525
New York, NY 10013
United States

HOME PAGE: http://vvernon.sunyempirefaculty.net

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