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  • 2017-01: The saturation of spending diversity and the truth about Mr Brown and Mrs Jones (Working paper)

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    Author(s)
    Chai, Andreas
    Kiedaisch, Christian
    Rohde, Nicholas
    Griffith University Author(s)
    Chai, Andreas
    Year published
    2017
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    Abstract
    Several cross country studies show that rising household income leads to consumption spending being spread more evenly across different spending categories(Clements et al., 2006). We argue that this result is likely due to aggregation. Using more disaggregated UK household level spending data, we show that the spending diversity of households only rises up to a certain income level and then starts to decline as households concentrate more of their spending on particular expenditure categories that differ across households. It is precisely because of this growing heterogeneity on the household level that the average spending ...
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    Several cross country studies show that rising household income leads to consumption spending being spread more evenly across different spending categories(Clements et al., 2006). We argue that this result is likely due to aggregation. Using more disaggregated UK household level spending data, we show that the spending diversity of households only rises up to a certain income level and then starts to decline as households concentrate more of their spending on particular expenditure categories that differ across households. It is precisely because of this growing heterogeneity on the household level that the average spending diversity of the population can nevertheless always rise in income. We build a model to capture this observed pattern and use it to show how the welfare judgements derived from studying a representative household become relatively more inaccurate when household income rises.
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    Copyright Statement
    Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
    Note
    Economics and Business Statistics
    Subject
    D12 - Consumer Economics: Empirical Analysis
    O33 - Technological Change: Choices and Consequences; Diffusion Processes
    C14 - Semiparametric and Nonparametric Methods: General
    Demand for variety
    Engel’s Law
    Spending Diversity
    Publication URI
    http://hdl.handle.net/10072/390475
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