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    Do quality ladders rationalise the Observed Engel Curves?

    Merella, V. (2014) Do quality ladders rationalise the Observed Engel Curves? Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    Observed Engel curves are non-monotonic, hence consumption goods may be regarded as luxuries only for ranges of consumer income. This paper rationalises this evidence by postulating that quality of consumption governs the distribution of spending across goods. We argue that quality upgrading as income increases not only implies that virtually every variety of each good eventually becomes inferior. But also amends the notion of luxury good: a change in income, producing di¤erent quality variations across goods, causes heterogeneous spending responses. The resulting Engel curves shapes depend on the rise in quality of each good relative to the average consumption quality improvement. An illustrative simulation shows that the model captures the essential features of the observed Engel curves.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM 1401; ISSN 1745-8587
    Keyword(s) / Subject(s): Engel Curves, Nonhomothetic Preferences, Quality Ladders
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 21 Mar 2019 16:23
    Last Modified: 27 Jul 2019 21:12
    URI: http://eprints.bbk.ac.uk/id/eprint/26585

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