Optimal minimax rates against non-smooth alternatives

This study investigates optimal minimax rates for specification testing when the alternative hypothesis is built on a set of non-smooth functions. The set consists of bounded functions that are not necessarily differentiable with no smoothness constraints imposed on their derivatives. In the instrumental variable regression set up with an unknown error variance structure, we find that the optimal minimax rate is n−1/4, where n is the sample size. The rate is achieved by a simple test based on the difference between non-parametric and parametric variance estimators. Simulation studies illustrate that the test has reasonable power against various non-smooth alternatives. The empirical application to Engel curves specification emphasizes the good applicability of the test.

Crowding-Out Effect of Out-of-Pocket Health Expenditures on Consumption Among Households in Mongolia

Background: High out-of-pocket (OOP) health expenditures are a common problem in developing countries. Studies rarely investigate the crowding-out effect of OOP health expenditures on other areas of household consumption. OOP health costs are a colossal burden on families and can lead to adjustments in other areas of consumption to cope with these costs. Methods: This cross-sectional study used self-reported household consumption data from the nationally representative Household Socioeconomic Survey (HSES), collected in 2018 by the National Statistical Office of Mongolia. We estimated a quadratic conditional Engel curves system to determine intrahousehold resource allocation among 12 consumption variables. The 3-stage least squared method was used to deal with heteroscedasticity and endogeneity problems to estimate the causal crowding-out effect of OOP. Results: The mean monthly OOP health expenditure per household was ₮64 673 (standard deviation [SD]=259 604), representing approximately 6.9% of total household expenditures. OOP health expenditures were associated with crowding out durables, communication, transportation, and rent, and with crowding in education and heating for all households. The crowding-out effect of ₮10 000 in OOP health expenditures was the largest for food (₮5149, 95% CI=−8582; −1695) and crowding-in effect was largest in heating (₮2691, 95% CI=737; 4649) in the lowest-income households. The effect of heating was more than 10 times greater than that in highest-income households (₮261, 95% CI=66; 454); in the highest-income households, food had a crowding-in effect (₮179, 95% CI=-445; 802) in absolute amounts. In terms of absolute amount, the crowding-out effect for food was up to 5 times greater in households without social health insurance (SHI) than in those with SHI. Conclusion: Our findings suggest that Mongolia’s OOP health expenses are associated with reduced essential expenditure on items such as durables, communication, transportation, rent, and food. The effect varies by household income level and SHI status, and the lowest-income families were most vulnerable. SHI in Mongolia may not protect households from large OOP health expenditures.

An Empirical Evaluation of Egg Demand in the United States

We adopt an EASI model to estimate demand for omega-3, organic, cage-free, and conventional eggs in the United States. Our empirical framework accounts for demand inter-dependencies among these egg types, while allowing for unrestricted Engel curves, unobserved consumer heterogeneity, and a broader product and geographic coverage. We further address endogeneity of prices and expenditures and left-censoring induced by disaggregate data. Our results indicate that the demand for organic and cage-free eggs is price-elastic, while the demand for omega-3 and conventional eggs is price-inelastic. Additionally, we establish strong substitutability relationships between the eggs. Finally, we measure consumer welfare consequences of rising domestic egg prices brought by Japan’s egg import tariff reductions.

Quantile Regression with Generated Regressors

This paper studies estimation and inference for linear quantile regression models with generated regressors. We suggest a practical two-step estimation procedure, where the generated regressors are computed in the first step. The asymptotic properties of the two-step estimator, namely, consistency and asymptotic normality are established. We show that the asymptotic variance-covariance matrix needs to be adjusted to account for the first-step estimation error. We propose a general estimator for the asymptotic variance-covariance, establish its consistency, and develop testing procedures for linear hypotheses in these models. Monte Carlo simulations to evaluate the finite-sample performance of the estimation and inference procedures are provided. Finally, we apply the proposed methods to study Engel curves for various commodities using data from the UK Family Expenditure Survey. We document strong heterogeneity in the estimated Engel curves along the conditional distribution of the budget share of each commodity. The empirical application also emphasizes that correctly estimating confidence intervals for the estimated Engel curves by the proposed estimator is of importance for inference.

Econometric examination of the impact of income on household expenditures for package holidays in Serbia

The subject of this paper is the econometric examination of the impact of income on expenditures, i.e. on the demand for package holidays of households in Serbia. The aim of this paper is to quantify the impact of income on household expenditures for package holidays in the country and abroad on the basis of alternative functional forms of Engel curves and elasticities derived from them. The starting research hypothesis is that with the increase in household income, the share of expenditures for tourist arrangements in total household expenditures in Serbia remains approximately unchanged. As sources of data, Household Budget Surveys in Serbia were used, which were conducted every year, starting from 2006 (until 2019). Based on the different functional forms of Engel curves, the parameters of the impact of income on expenditures for package arrangements were estimated, and then income elasticities were estimated. In addition to the impact of income, the impact of qualitative characteristics of households and especially household heads on expenditures for tourist arrangements was examined. With the help of appropriate statistical tests, the basic research hypothesis was proven and the influence of socio-economic and demographic characteristics of households on the demand for package holidays was quantified.

Personality Traits and Household Consumption Choices

This study examines the role personality traits play in influencing consumption decisions for both individuals and households by means of a complete system of Engel curves. Estimations are performed on the German Socio-Economic Panel (SOEP) using the following four different samples: single men, single women, childless couples and couples with children. Personality traits are found to moderately improve the general goodness of fit of the model, reducing the RMSE on average by 2.8%. This is the result of some traits strongly contributing to explaining specific consumption categories, such as Mental Openness contributing substantially to explaining expenditure in education and culture, and several non-significant personality trait-consumption category associations. Robustness analysis suggests that the effect is fairly stable across age groups within the same household type and that the effects of personality traits on consumption choices are independent of education level.

Impact of Tobacco Expenditure on Household Spending Patterns in Kenya

Despite measures to control tobacco use in Kenya, there is still an increasing importance in the use of tobacco. This is seen by the growth in per capita consumption over time. Tobacco, being an addictive product, creates a situation where consumers allocate part of their resources towards its consumption and therefore positions the use of tobacco as an important expenditure decision in households in Kenya. Due to budget constraints faced by households in Kenya, tobacco consumption may crowd out consumption of essential goods and services. This paper therefore focuses on the impact of tobacco expenditure on household spending patterns in Kenya. Using the 2005/2006 Kenya Integrated Household and Budget survey, a Quadratic Almost Ideal Demand System was used to estimate a system of Engel curves to check whether the differences in expenditure between the two types of households is as a result of tobacco use or not. Results suggest that tobacco crowds out the consumption of food, health care, schooling, clothing, entertainment, house care, and personal care. Geographical location and socio-economic standing of households have a significant influence on the magnitude and pattern of crowding out. The policy implication of this finding is that tobacco control should be an integral part of governments’ poverty alleviation strategy.

Understanding the Drivers of Household Energy Spending: Micro Evidence for Latin America

The paper investigates the determinants of household energy spending and energy budget shares, with a focus on understanding their non-linear relationship with income, and the presence of economies of scale. The analysis is based on a unique, harmonized collection of official household surveys from 13 Latin American countries. This dataset allows distinguishing between expenditures on electricity, domestic gas, and fuel for private transportation, providing a comprehensive distributional view of the energy spending profile of the residential sector. The estimated empirical Engel curves behave similarly; however, the derived income elasticities show marked distinctions by fuel, and their actual values depend on the households’ relative position over the income distribution. For electricity, the elasticity tends to increase in income but stabilize at the wealthiest segments. For gas and transport fuel, it decreases under different income paths. In this dataset, the examination returns income elasticities on the (0,1) interval, suggesting that energy commodities are necessity goods. However, the distribution of aggregate energy expenditure needs to be considered. Specifically, there is a great concentration among the richer groups, particularly for transport fuels, where the top quintile gathers more than half of the aggregate spending. The results also indicate economies of scale ––for electricity and domestic gas–– with respect to family-age composition, and to a lesser extent with respect to dwelling size. In the case of electricity, these economies are more pronounced for richer households. These results join the previous literature in emphasizing the relevance of accounting for household demographic and socioeconomic trends for energy management.

Estimation of Engel curves for household expenditure on dry bean and processed bean in Mexico

Dry bean is the leading source of low-cost plant-based proteins in Mexico. However, in the years following the liberalization of the economy, Mexico experienced the erosion of a self-sufficiency index for this commodity. Impending changes in the international markets for proteins compel us to reevaluate the role of dry bean for Mexico’s food security. In the present paper we set out to analyze the last link of the marketing chain in Mexico’s dry bean market: the consumer. Using data on household expenditure for 2018, the relationship between income and expenditure on dry bean as well as on processed bean is ascertained by means of the Working-Leser Engel Curve equations system. Due to the presence of zero-expenditure households in the sample, we followed the two-step Heckit procedure for the possible selection bias. The results suggest that the budget share for dry bean and for processed bean drops as income increases. The corrected conditional elasticity for dry bean is −0.1056. For processed bean, the elasticity is −0.2286. The negative sign indicates that both commodities are inferior goods.