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Gan and Vernon's comment does not resolve the puzzle that we orig- inally posed. Their description of the puzzle is unclear, so we start by restating it. The essence of the matter is this. Imagine two households, one of which is larger than the other, for example, containing the same age and sex composition of people, but with twice as many of everyone. Imagine too that both households have the same level of per capita total house- hold expenditure so that, in the example, the household with twice as many people spends twice as much in total. If there are economies of scale, the second household is better off. While it is possible for it to maintain exactly the same expenditure pattern as the smaller household, with everyone having the same of everything, it can also rearrange its purchases to take advantage of the differential economies of scale in different goods. Because food is a normal good, we would expect the larger household to spend more per capita on food. This is especially so in poor countries, where there are few substitutes for food, so that there is limited opportunity for substituting away from food toward goods with greater economies of scale. The evidence contradicts this prediction. We looked at household survey data from the United States, the United Kingdom, France, Taiwan, Thailand, Pakistan, and South Africa. In all cases, and with per capita expenditures held constant, larger households have lower per capita food consumption, and the reduction with household size is greatest in the poorest countries. What do Gan and Vernon do? They show that, for the United States, Russia, and South Africa, when they increase household size holding constant per capita total expenditure, the per capita demand for housing falls more rapidly than the per capita demand for food. The same is also true for various combinations of housing and other goods, com- pared with food alone or food combined with clothing. This is correct, and such results can be inferred from table 5 (p. 920) of our original paper. But these findings do not address the central puzzle, which is that larger households that are (more than) fully compensated for their

Engel’s What? A Response to Gan and Vernon