Demographics and Quality: Household Production Theory and the “Repackaging Model” Revisited
This chapter proposes a conciliatory interpretation of the economic content of Barten-Gorman demographic effects. The understanding of the behavioral content of modifying functions is crucial to answer the positive question and to comprehend how demographic characteristics can reveal subjective preferences and expectations. The Barten-Gorman demographic modification is instrumental to this objective since this technique characterizes how demographic effects influence budget allocation decisions via both an income/translating effect and a price/scaling effect.
KeywordsIntermediate Good Objective Characteristic Utility Level Indifference Curve Indirect Utility Function
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- 1.Note that, in the Barten model, the term b is specified as 1/b.Google Scholar
- 2.Dagsvik, Zhu and Aaberge (1998) take the same view.Google Scholar
- 3.Note that the knowledge of the function m(d,z) does not imply the idenfication ofmm(d) Google Scholar
- 4.Note that, when unit values are used, the condition that households are tacing the same prices implies that any reference set of unit values, with a unit vector of characteristics intrinsic to the good, is used for comparisons.Google Scholar
- 5.No that the movement cannot occur while maintaining the distance Oa fixed, except for the trivial case when all m i are equal to 1.Google Scholar
- 7.A two-good world is undoubtedly rather restrictive. This representation, however, has been chosen in order to minimize the possibility of confusion such as the one documented in the literature by Leonard (1990) and Fisher (1990) generated by the inverse structure of the Barten model.Google Scholar
- 8.As observed in the first sections of this chapter, Gorman (1976:219) discusses in a similar fashion the same basic intuition. Fisher and Shell (1971) use the Barten construction to describe what they define the “simple repackaging” specification of quality change. According to Fisher and Shell, a quality improvement is equivalent to acquiring a “new” good that delivers the same services as m> 1“old” goods corresponding to a larger package of the old good at the same price or to a reduction of the price per unit of the old good.Google Scholar
- 9.It must be emphasized that the analysis also assumes that the vector of demographic characteristics has fixed dimensions and is known with certainty by all players so that consumers do not interact.Google Scholar