who would be left behind by enhanced private school choice abstract debate over school choice is central to many discussions of public elementary and secondary educational reform the debate has largely focused on conceptual arguments rather than careful empirical research that attempts to sort out competing claims an important unresolved issue is the question of cream skimming who will move and who will be left behind as a result of enhanced school choice this paper uses data from the national educational longitudinal survey nels 88 to estimate a model of public private school choice which is used to simulate who would likely leave public schools as a result of enhanced private school choice building upon the work of k train et al 1987 the review of economics and statistics 69 383 391 we employ a probit model with latent explanatory variables to account for the unobserved attitudes of parents and their children regarding education the model allows us to consider such latent interests in education as well as the academic and socioeconomic characteristics of those students who would likely switch to private schools our findings indicate that concerns about bright flight or academic cream skimming in response to increased school choice appear to be overstated however we estimate that there would be substantially more economic and racial segregation of students as movers tend to be white and have higher incomes than those who are left behind

household demand in rural china a two stage les aids model a complete demand system of chinese rural households is estimated using a two stage les aids model and pooled provincial and time series data from 1982 to 1990 for commodity groups food clothing fuel housing and other commodities demand is price inelastic housing and other commodities are luxury goods while clothing and food are necessities within the food group price elasticities range from 0 005 to 0 63 expenditure elasticities are lower for grains and higher for meat tobacco and alcohol the results imply a gap between food demand and supply growth therefore china will face pressure to import food

population dynamics and consumer demand the authors analyze the effects on consumption in the united states of 11 demographic variables including regional location and the urban rural base of the household its age size race sex and marital characteristics and the education and the employment status of the household head and the spouse data are from the 1972 1973 consumer expenditure survey the expenditure functions are first specified followed by descriptions of the data sources and the empirical estimates of expenditure functions for various items of consumption spending excerpt

buying their votes a study of local tax price discrimination i introduction financial support for public schools in developed countries has recently been declining as governments face increasing pressure to balance their budgets by reducing expenditures on public services public school revenues may be particularly vulnerable in countries where elderly residents will compose a rising share of the population while the percent of united states residents over the age of 65 was 12 4 in 2000 the u s census bureau 2008 predicts this will rise to 16 3 by 2020 and 20 7 by 2050 recent growth in the upper middle aged population ages 55 64 has occurred throughout the united states and if current trends continue communities with the largest growth in the elderly share ages 65 and over over the next 30 years will experience this growth primarily due to aging in place rather than residential migration frey 2007 the typical school district will thus have an increasing share of adults who do not consume public schooling services this trend could have two important implications for school districts 1 decreased political support for school expenditures and 2 a greater tax base per student due to a reduction in the relative size of the school aged population if the former effect dominates the latter then local district revenues per student will decline this dynamic would be consistent with prior u s trends figlio and fletcher 2012 find that most of the within metropolitan area variation in suburbs age distributions in 1980 and 1990 can be traced back to these suburbs age distributions when adults settled there in earlier decades those authors simulate the shares of elderly adults residing in various suburbs based on the aging in place of early residents and their simulated elderly shares are negatively correlated with suburban school expenditures state or federal governments could potentially alter this dynamic by subsidizing local property tax reductions that are targeted toward elderly homeowners elderly homeowners receiving these reductions might support higher levels of local public school spending because they can maintain high property values at a relatively low cost in other words elderly homeowners preferred level of local tax revenues may be sensitive to their marginal local tax price the change in their tax payments required to increase local school district revenues by one dollar by influencing elderly homeowners preferred local tax rates targeted tax price reductions may shift the identity of the local median voter and thus moderate how changes in demographics affect local public revenue this article is the first to empirically examine whether targeted tax price reductions moderate the impact of age demographics on local government revenues prior studies examined how the aging in place of local populations affects public school revenues figlio and fletcher 2012 harris evans and schwab 2001 ladd and murray 2001 and this article tests whether there is important within sample heterogeneity in these effects using similar methods as these prior studies the empirical models below isolate the exogenous component of changes in local age demographics by using lagged population shares as instrumental variables predicting future age demographics to test for heterogeneous effects i assembled a longitudinal data set concerning states property tax reduction policies for elderly homeowners the results confirm earlier studies findings that exogenous increases in the fraction of elderly residents ages 65 and over on average decrease tax revenues in u s school districts however state financed reductions in elderly homeowners marginal local tax prices significantly reduce the negative effect of the local elderly population share this negative effect is only large in communities not offering any targeted local tax price reductions to elderly homeowners significant differences in the effects of the elderly share across state policy regimes are robust to several alternative empirical specifications including comparisons of school districts that are located near each other on opposite sides of state borders

a generalization of working s model abstract working s 1943 model states that budget shares are linear functions of the logarithm of income it implies constant differences between corresponding marginal and budget shares a one parameter generalization is proposed which allows each marginal share to be a linear function of the corresponding budget share this model can be further extended with one extra parameter so that all goods are either specific substitutes or specific complements

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

interdependent international relations and the expansion of ethanol production and consumption the brazilian perspective abstract the global production and consumption of ethanol are expected to increase the growing interdependence of markets and nations producers and consumers of biofuels has led actors to seek and devise mechanisms intended to develop the sector this paper aims to analyze the interdependent international relations between brazil and other ethanol biofuel producer and consumer countries to do so the paper explores the theory of complex interdependence and the game theory a quali quantitative study was conducted involving the application of two questionnaires to experts on biofuels and documentary analysis aided by qda miner software the results show that brazil shares highly interdependent relations with the united states an intermediate degree of interdependence with europe and a low degree of interdependence with china the dimensions of those interdependent relations can be ranked according to importance in the following order first the political then the economic technical and finally the social environmental dimensions a number of actions can be envisaged that could lead ethanol to achieve an increasingly strategic position in the diversification of the energy matrix in different countries technological efforts to improve production efficiency the creation of globally integrated policies designed to provide security and develop the production and consumption infrastructure the reduction of international tariffs on the product and the transformation of ethanol into a global commodity with a large number of countries buying and selling the product this paper faced the challenge of integrating approaches and concepts from two complex theoretical areas complex interdependence theory and game theory the research methodology and the insights gained from the ethanol case contribute to the literature on the applicability of these two theoretical approaches

aggregate consumer behaviour and the measurement of inequality this paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour the novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions we present methods for evaluating social welfare based on an explicit social welfare function this social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units we develop indexes of inequality based on actual and potential levels of social welfare

an emprical model of the demand for a varied diet this study attempts to measure some aspects of the household s demand for a varied die by invesigaing how he number of individual foods consumed b he household is affeced b is preferences and food expendiure a heoriical model suggesed b household production theory is adopted to empirical data from a cross section of households it is found that the number of individual foods consumed is strongly responsive to househjold expenditure on all foods

modelling demand systems with demographic effects based on the modifying function approach abstract we follow review of economic studies 52 1985 1 approach to modify the standard consumer demand theory so that socio demographic variables can be formally incorporated into the demand systems our modified theory not only includes all previous approaches to this problem as special cases but also allows the useful interpretations of household production and subsistence expenditure

on using linear regressions in welfare economics this article consists of two parts the first part shows that the ordinary least squares regression coefficient is a weighted average of slopes between adjacent sample points when applied to a linear regression with income as the independent variable the regression coefficient depends heavily on the slopes of high income groups the weight of the highest income decile may well exceed that of the other nine deciles this may be undesirable especially if the regression is used for welfare analysis because the marginal propensities to consume attributed to the commodities are determined by the high income groups the second part of the article proposes alternative estimators the extended gini estimators that enable investigators to control the weighting scheme and to incorporate their social views into the weighting scheme of the estimators

the welfare effects of disarmament on the united states under nato and the warsaw pact this paper develops a model of disarmament by incorporating rationing theory into the economic theory of alliance in order to provide an econometric measure of welfare gain from a disarmament treaty the author employs the cost functions predicated on rationed and unrationed demand systems by combining the economic theory of foreign aid with that of alliance the author examines the impact of disarmament on the developed economies foreign aid to developing countries as a peace dividend the model is applied to the case of the u s economy under mutual disarmament between nato and the warsaw pact copyright 1996 by mit press

recovering individual preferences for non market goods a collective travel cost model traditional recreation demand models do not make a distinction between a household and an individual as the reference decision making unit thus assuming that a family maximizes a single utility function even if the family consists of different individuals such models ignore the possibility of family members divergent preferences for non market goods this study proposes a novel approach the collective travel cost model ctcm to eliciting individual preferences for a non market good such as a recreation site by using revealed preference data this approach accounts for the intra household resource allocation and the role of each household member s preferences we show that the collective travel cost model can be applied to estimating a recreation demand model that yields individual welfare estimates appropriate for policy analysis of non market goods such as the willingness to pay to access a recreation site we find that how resources are distributed within the household reflects significant differences in welfare measures

efficiency and equity in the provision of public education the paper focuses on the benefits derived from public elementary and secondary education monetary values of households perceived benefits from operating expenditures are estimated information concerning the preference mappings of citizens is obtained using a random utility model to analyze micro voting data the estimated model in turn provides information concerning the efficiency and distributional consequences of public education expenditures the conclusion is that operating expenditures exceed the estimated efficient level furthermore it may be difficult to justify the inefficiently large expenditures on equity grounds since the estimated distribution of households perceived benefits net of local taxes is pro rich g overnment provision of goods and i j services has the potential of greatly affecting the welfare of citizens this paper focuses on the benefits derived from one such service public elementary and secondary education monetary values of households perceived benefits from public education expenditures are estimated information concerning the preference mappings of citizens is obtained using a multinomial probit random utility model to analyze micro voting data the estimated model in turn provides information concerning the efficiency and distributional consequences of public education expenditures the conclusion is that operating expenditures exceed the estimated efficient level furthermore it may be difficult to justify the inefficiently large expenditures on equity grounds since the estimated distribution of households perceived benefits net of local taxes is pro rich in contrast to this study a number of studies employ ad hoc rules to measure citizens benefits from public elementary and secondary education initially total benefits are assumed to equal the cost of educational services this input cost measure of benefits is then allocated to households using some unproven rule of thumb when an ad hoc rule is used to allocate a questionable measure of total benefits the results are even more suspect conceptually it is quite odd to determine assume total benefits and then allocate the total to individuals or households the correct method is first to obtain estimates of individuals or households benefits these estimates can then be used to determine the magnitude of total benefits and analyze how the benefits are distributed across the population aaron and mcguire 1970 criticize ad hoc benefit measures and propose the income value measure for x units of the politically allocated good x this measure is iv mrsj x where mrsj is the marginal rate of substitution of x for a composite commodity evaluated at x and one s aftertax income this measure is comparable to measures of the income values of goods purchased in private markets while aaron and mcguire argue for preferencebased benefit measures the lack of information concerning preference mappings necessitates that they assume the shape of the utility function even though the results by maital 1973 based on a similar method are slightly less restrictive a number of restrictive assumptions are common to both studies not only are households assumed to have identical separable utility functions but the existing levels of politically allocated goods are assumed to be efficient implying the total income value equals the input cost also the allocation of benefits from mixed goods e g public education between public and private components is based on ad hoc rules the major contribution of the current study is that the benefit estimates are based on information concerning the preference mappings of individuals as revealed through referenda voting 2 the estireceived for publication march 9 1983 revision accepted for publication june 4 1984 state university of new york albany this paper was improved as a result of the advice and encouragement of kenneth wertz john akin david guilkey and james wilde as well as the helpful comments of two referees financial support for this research was in part provided by a dissertation research fellowship from the brookings institution 1 an example is the 1967 tax foundation study 2nmicro voting data are also used by rubinfeld 1977 to obtain information about citizens preferences for public school expenditures he uniquely estimates the parameters of a demand function up to an unknown multiplicative constant a micro demand function for education is uniquely estimated by bergstrom rubinfeld and shapiro 1982 using a different type of survey data while the method used here is to directly estimate preference mappings the information concerning such mappings embedded in such a demand function provides an

social construction and physical nihilation of the keystone xl pipeline lessons from international relations theory abstract if a prime goal of energy policy is to achieve energy security why is there a controversy over the proposed keystone xl pipeline designed to deliver new supplies of oil from within north america this viewpoint seeks answers in the debate over the underlying purposes of energy policy how does one answers the question what do we want from energy policy perceptions of feasible answers and policy options change over time as witnessed in the 1970s analogous shifts in opinion are changing today s policy debates and widening the contradictions in policy purposes attention to the existence of these contradictions without illusions is necessary to meet the policy challenges of the future effectively

the welfare cost of free public schools the welfare cost of free public schools is the difference between the cost of those schools and the maximum parents would be willing to pay to send their children to those schools estimates based on data from california school districts in 1970 indicate that this welfare cost is substantial mostly because private schools are cheaper per unit of quality than public schools

a capitalization approach to fiscal incidence at the local level this paper argues that an analysis of the capitalized burdens and benefits of the local public sector offers a simple straightforward and objective computational methodology to fiscal incidence at the local level this capitalization approach represents a major departure from the highly discretionary and imprecise computational environment of the reasonable assumptions and aaron and mcguire approaches it is initially discussed both from conceptual and operational points of view and then implemented using alternate procedures major limitations of the approach are then noted a comparative perspective on fiscal incidence results based on the capitalization approach and of earlier studies on this subject is provided in the concluding section of the paper during the past two decades several important studies have been published which investigate the redistributive implications of federal provincial and local government finances in canada all the canadian studies on the subject in general follow the methodology used for similar studies in the united states these studies differ as to the shifting of tax burden assumptions and the concept of income employed and understandably their results also vary accordingly a common criticism of these approaches is that their distribution conclusions depend crucially on what incidence hypothesis is chosen musgrave and musgrave 1976 394 all these studies merely illustrate what the distribution of fiscal incidence would be if the incidence assumptions were true the numerical es

a cross country tabulation of own price elasticities of demand abstract this paper tabulates frisch slutsky and cournot own price elasticities for each of 10 goods at the per capita real income levels of 30 countries ranging from india to the united states

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

strategic trade policy design with asymmetric information and public contracts this paper examines strategic trade policy under asymmetric information with publicly observable contracts we analyse both the cases of unilateral and bilateral intervention we find that the requirement of incentive compatibility undermines the strategic precommitment effect when public funds are costly even with no restrictions on the form of the policies second when firms sell substitute goods the introduction of a rival interventionist government may reduce the cost of informational rents to each government third it turns out that under bilateral intervention there exists a continuum of symmetric equilibria with levels of output and corresponding levels of welfare in the exporting countries which can be ranked the requirement of ex post participation constraints for the firm limits the set of subsidies which can be offered to the firm in particular under bilateral intervention the equilibrium levels of output which are implemented under adverse selection are below their values under ex ante uncertainty i e below the equilibrium levels of output which are achieved when firms sign their contracts before the realization of their costs ever since the inception of research on strategic trade policy with the seminal paper by brander and spencer 1985 economists have been warning that the informational requirements of rent shifting policies are enormous and unlikely to be met in practice because the policy recommendations are highly sensitive to the particularities of the market in response a number of recent papers have begun to address the specific ways that informational failures affect policy and to modify policy recommendations to take such failures into account this paper analyses the implications of asymmetric information for strategic trade policy under both unilateral and bilateral intervention our complete information benchmark is a simple trade policy designed to shift rents similar to brander spencer two firms are competing in a third country and receive export subsidies from their respective governments however we place no restrictions on the form of these export policies previous literature has shown that under complete information a large number of outcomes may be sustained as equilibria of delegation games such as this moreover the introduction of uncertainty about the state of nature on the part of both

information and disclosure in strategic trade policy we relax the standard assumption in the strategic trade policy literature that governments possess complete information about the economy assuming instead that governments must obtain information from firms we examine firms incentive to disclose information to the governments in the brander spencer setting with quantity competition we find firms disclosing both demand and cost information thereby justifying the literature s omniscient government assumption with price competition however firms have no incentives to disclose demand or cost information so governments remain uninformed further with quantity competition and unknown demand governments are caught in an informational prisoner s dilemma

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

green recovery policies for the covid 19 crisis modelling the impact on the economy and greenhouse gas emissions the covid 19 pandemic induces the worst economic downturn since the second world war requiring governments to design large scale recovery plans to overcome this crisis this paper quantitatively assesses the potential of government investments in eco friendly construction projects to boost the economy and simultaneously realise environmental gains through reduced energy consumption and related greenhouse gas emissions the analysis uses a computable general equilibrium model that examines the macroeconomic impact of the covid 19 crisis in a small open economy belgium subsequently the impact of the proposed policy is assessed through comparative analysis for macroeconomic parameters as well as co2 equivalent emissions for four scenarios our findings demonstrate that the covid 19 pandemic damages economies considerably however the reduction in emissions is less than proportionate still well designed public policies can reverse this trend achieving both economic growth and a disproportionally large decrease in emissions moreover the positive effect of such a decoupling policy on gdp is even stronger during the pandemic than compared to the pre covid 19 period this is the result of a targeted investment induced green transition towards low energy intensive economic activities finally this paper describes how the net effect on the government budget is positive through the indirect gains of the economic uptake

determinants of price elasticities for private labels and national brands of cheese an almost ideal demand system model is developed and used to estimate price elasticities for us cheese sold at retail growing consumption of cheese coupled with fierce competition between private labels and national brands serves as motivating factors for this study per capita consumption of cheese grew by 75 during 1980 2004 and private labels captured a rising share of this growth private labels today account for 35 of market share national brands for the remaining 65 kraft accounts for 45 of national brands but price increases for kraft brands led to a sizeable price gap between its brands and private labels this gap helped to stimulate growth of private labels marketing managers seek to capitalize on both growing cheese sales and price gaps for brands relevant information for marketing managers is consumer sensitivity to price changes this study uses 69 weeks of scanner data with consumers segmented by income levels to derive price elasticities for both lower and higher income consumer

determinants of food consumption in rural sierra leone abstract this paper reports the application of a quadratic expenditure system with demographic variables to the household consumption leisure choice component of a household firm model a system of seven commodities is estimated including five foods non food and leisure appropriate for such a level of disaggregation a demand system is used the quadratic expenditure system which allows for a flexible relationship between full income and commodity expenditures without sacrificing parsimony in parameters demographic data on households are explicitly incorporated into the model allowing for a richer specification than can be achieved by using per capita variables the data are from a cross section survey of households in rural sierra leone price variation exists by region permitting estimation of a complete demand system engel curves are found to be significantly non linear with marginal expenditure on rice the major staple declining with higher income most foods are found to be reasonably price responsive with sizeable own price substitution effects declining with higher income aggregate labor supply is found to be price inelastic

the institutionalisation of trust in the international climate regime abstract in the extensive literature on international environmental co operation trust is usually treated in terms of compliance and verification mechanisms on the assumption that there will always be incentives for parties to international agreements to cheat or to free ride indeed the establishment of adequate assurances that such behaviour will be detected and punished is frequently the sine qua non of agreement in the first place technical and legal compliance mechanisms have developed rapidly in environmental treaty making over the last two decades the climate regime is no exception and its provisions in this regard are briefly described and analysed however it will be argued that the development of trust amongst the parties goes well beyond formal compliance and depends upon the institutionalised relationships often amongst officials and technical experts that have grown up since the negotiations for a climate treaty commenced in the late 1980s

horizontal equity income taxation and self selection with an application to income tax credits abstract this paper investigates the relationship between utilitarianism and horizontal equity in models of income taxation in particular and self selection in general an example involving well behaved individual preferences is constructed in which a maximization of a utilitarian social welfare function leads via income taxation to horizontal inequities sufficient conditions for utilitarianism to bring horizontal equity are derived the results are applied to the question of whether income tax credits are an appropriate way to treat differences in family size

the household s decision to accept or reject a conditional transfer offer households deemed by society to have insufficient resources to purchase an adequate commodity bundle are often offered aid i e additional resources conditional upon the households purchasing a given level of some commodity e g food fuel or housing such conditional transfers attempt to modify the households normal behavior i e if the households would normally purchase the required level of the designated commodity upon receipt of the transfer the constraint would not be necessary how these incentives and constraints interact to affect the households behavior determines in large part the number and type of eligibles aided by the program aggregate program costs given payment levels and the types of commodity bundles purchased by the recipient households clearly understanding the decision to accept or reject a conditional transfer offer has widespread implications for the costs of the transfer program the impact on eligible households and the attainment of society s objectives numerous studies have investigated the size and distribution of recipient benefits in conditional transfer programs 1 3 6 8 9 14 16 21 to this author s knowledge however no analysis has estimated a model of the household s decision to participate in a conditional transfer program using household data and a theoretically appropriate measure for the household s net gain to overcome this gap in our understanding of the household s

estimation of complete demand systems from household budget data the linear and quadratic expenditure systems in this paper we explore two issues in empirical demand analysis the estimation of complete systems of demand equations using household budget data section i and the incorporation of demographic characteristics into such systems section ii although there are numerous studies which use time series data to estimate complete demand systems and many which estimate engel curves from household budget data there are virtually none which combine budget data from different periods to estimate complete systems since each budget study corresponds to a single price situation one might conjecture that estimation of complete systems would not be possible unless budget studies were available from a large number of periods this is incorrect in section i we argue that interesting complete demand systems can be estimated from a small number of budget studies despite the limited price variability represented in such data to demonstrate this we use budget study data for two periods to estimate a pair of related demand systems the familiar linear expenditure system les and a quadratic expenditure system qes a generalization of les in which the demand equations are quadratic in total expenditure the inclusion of demographic variables in the analysis of household consumption patterns is desirable because there are likely to be systematic differences in the consumption behavior of households with different demographic characteristics but the effects of demographic characteristics have seldom been studied within the framework of complete demand systems in section ii we propose translating as a general method for incorporating demographic variables into complete systems of demand equations this method has not previously been discussed as a general technique for bringing demographic variables into demand systems although it has been employed in several studies to improve the estimates of the les and the qes presented in section i we reestimate these two systems using translating to incorporate family size

the efficiency of housing search previous research in the housing market has largely focused on housing market outcomes e g the quantity of housing services demanded or supplied or the determination of equilibrium prices scant attention has been directed at the processes producing these outcomes recently economists have developed models of buyer and seller search processes in housing markets 6 22 but almost no empirical testing of these models has been done the importance of search in economic markets has been discussed by lippman and mccall 15 the difficulties encountered by deterministic theories of economic markets in explaining different prices for identical commodities and persistent positive levels of unemployed resources are overcome when search is introduced search may be of even greater importance in housing markets than in most other economic markets housing generally accounts for the largest item of consumption for most households for homeowners housing is usually the household s largest asset housing is a heterogeneous commodity that is traded in highly decentralized markets 2 the costs of moving can be substantial reducing the gains from relocation the consumption of housing also involves externalities that add to the heterogeneity of the consumption bundle finally recent theoretical work by courant 6 suggests that the rational search behavior of households facing discrimination in housing markets might act to perpetuate adverse market conditions facing such households given the importance of housing as a consumption commodity and as an asset and the above characteristics of housing and housing markets previous descriptive examinations

an examination of preferences for local public sector outputs relatively unique data on the costs of public services for local governments in victoria australia are used to estimate a system of demand equations and to test alternative specifications of the underlying preferences using a translog model symmetry conditions are rejected so the data are not consistent with constrained utility maximization a nonparametric test confirms that result conditional on symmetry tests reject homogeneity and the additivity of preferences and also the separability of personal and property services copyright 1988 by mit press

a household production specification of demographic variables in demand analysis empirical investigations into the expenditure and time allocation decisions of households usually allow the variation in demographic characteristics across households in particular the number and ages of dependent children to affect these decisions the motivation for allowing such demographic effects is two fold first it permits the researcher to pool observations from households with differing demographic characteristics secondly it has been argued that it allows the researcher to construct an index normally called an equivalence scale to show the full income required by a household with some given composition to attain the same level of utility as some reference household and hence permits comparisons of welfare levels across households there are two areas of controversy surrounding this literature which directly relate to its two sources of motivation first what is the appropriate demographic specification second can the estimated parameters be used to undertake welfare comparisons a series of demand studies including barten 1964 blundell 1980 blundell and walker 1982 gorman 1976 muellbauer 1974 1977 hurd and pencavel 1981 pollak and wales 1978 1981 and ray 1983 have attempted to answer the first problem by considering the current allocation of goods and in some cases household time conditional on demographic structure this literature treats demographic variables as exogenous whereas in contrast the neoclassical fertility literature see for example the contributions in schultz 1973 treats the numbers and ages of children as endogenous nonmarket goods within a lifecycle optimising framework the second problem has been raised by pollak and wales 1979 who argue convincingly whether household composition is the result of endogenous decisions or not it is impossible to compare the welfare of households with different compositions using the results of empirical demand analysis since market decisions do not reveal how the households feel about the presence or absence of children thus estimated equivalence scales are necessarily based on the households preferences conditional on their demographic compositions the object of this paper is to suggest a new approach to the problem of demographic specification and to show that this approach both highlights the problem of making welfare comparisons and at least in part resolves it

price and income elasticities of residential energy demand in germany we apply a quadratic expenditure system to estimate price and expenditure elasticities of residential energy demand electricity and heating in germany using official expenditure data from 1993 to 2008 we estimate an expenditure elasticity for electricity of 0 3988 and of 0 4055 for space heating the own price elasticity for electricity is 0 4310 and 0 5008 in the case of space heating disaggregation of households by expenditure and demographic composition reveals that the behavioural response to energy price changes is weaker stronger for low income top income households there are considerable economies of scale in residential energy use but scale effects are not well approximated by the new oedc equivalence scale real increases in energy prices show a regressive pattern of incidence implying that the welfare consequences of direct energy taxation are larger for low income households the application of zero elasticities in assessments of welfare consequences of energy taxation strongly underestimates potential welfare effects the increase in inequality is 22 smaller when compared to the application of rich and disaggregated behavioural response patterns as estimated in this paper