Reconsidering the Economics of Demand Analysis with Kinked Budget Constraints / Aaron Strong, V. Kerry Smith.

Format:

Book

Author/Creator:

Strong, Aaron.

Contributor:

National Bureau of Economic Research.

Smith, V. Kerry.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14304.

NBER working paper series no. w14304

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This paper has two objectives. First, we identify a problem with the ability of the discrete-continuous choice (DCC) framework and conditional demand functions to fully describe consumer preferences in the presence of kinked budget constraints. Second, we propose and illustrate an alternative, preference based, method for estimating consumer responses to price changes under these conditions. Our preference based approach yields price elasticities on the order of 0.4 and a "utilities expenditure" elasticity of near unity. This research highlights the possibility that households may be more sensitive to price schedules than previously thought. It is recognizes commitments to commodities such as pools or outdoor landscaping influence how water consumption responds to price changes as part of the long run adjustments.

Notes:

Print version record

September 2008.