Economies of Scale and the Demand for Food in Switzerland: Parametric and Non‐Parametric Analysis

Abstract

This paper examines the role of household public goods arising from co‐residence and economies of scale in the allocation of household expenditure. Using both parametric and non‐parametric methods, the paper tests the theoretical prediction that in the presence of shared public goods, larger households should have higher per capita consumption of private goods like food, provided that they do not substitute too much towards the effectively cheaper public good. The results indicate that, at constant per capita total expenditure, the per capita demand for food declines with household size. No evidence is found in favour of the hypothesis that the endogeneity of male and female hours of work in the labour force could be responsible for this anomaly. However, an examination of the role of direct economies of scale in explaining this negative relationship yielded a negative relationship between household size and quality adjusted unit values, suggesting that the effects of direct economies of scale dominate those generated by public goods.

Measurement Error in Recall Surveys and the Relationship between Household Size and Food Demand

“…This pattern has been confirmed by Gardes and Starzec (2000), Perali (2001), Abdulai (2003), and Gan and Vernon (2003). Theory predicts the opposite pattern.…”

“…Gan and Vernon (2003) suggest that there are economies of scale in food preparation but this only deepens the puzzle because a reduction in per capita preparation costs should allow an increase in food expenditures per head. Abdulai (2003) suggests that bulk discounts allow larger households to spend less on food even as they consume more. But he provides no evidence of these bulk discounts, other than a negative effect of household size on the average unit value for all food-which could just as easily reflect a tendency for larger households to buy lower quality foods (Deaton 1997).…”

Do Adult Equivalence Scales Matter in Poverty Estimates? A Northern Ghana Case Study and Simulation

“…In the poorest countries they studied in particular, including South Africa, there was a large negative association between food consumption per person and household size. Abdulai () also found similar empirical evidence in Switzerland that at constant per capita total expenditure, the per capita demand for food declines with household size. Therefore, regardless of the empirical evidence of the existence of scale economies, it is expected that measures that adjust for economies of scale may reflect different poverty rates than those that do.…”

The Demand for Organic and Conventional Produce in London, UK: A System Approach

“…However, low R 2 in unit value equations have been reported elsewhere in the literature as well. For example, Abdulai (2003) employs the procedure of Cox and Wohlgenant (1986) to compute the quality adjusted price of food, and the reported Adjusted R 2 of the unit value equation for food is 0.049. Cox and Wohlgenant (1986) themselves also report low R 2 in their article.…”