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INDIVIDUAL VERSUS AGGREGATE INCOME ELASTICITIES FOR HETEROGENEOUS POPULATIONS
Author(s) -
Paluch Michal,
Kneip Alois,
Hildenbrand Werner
Publication year - 2012
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.1237
Subject(s) - econometrics , economics , aggregate (composite) , elasticity (physics) , nonparametric statistics , population , current population survey , materials science , demography , sociology , composite material
SUMMARY This paper deals with different concepts of income elasticities of demand for a heterogeneous population and the relationship between individual and aggregate elasticities. In general, the aggregate elasticity is not equal to the mean of individual elasticities. The difference depends on the heterogeneity of the population and is quantified by a covariance term. Sign and magnitude of this term are determined by an empirical analysis based on the UK Family Expenditure Survey. It is shown that the relevant quantities can be identified from cross‐sectional data and, without imposing restrictive structural assumptions, can be estimated by nonparametric techniques. It turns out that the aggregate elasticity significantly overestimates the mean of individual elasticities for many commodity groups. Copyright © 2011 John Wiley & Sons, Ltd.