Advances in Household Economics, Consumer Behaviour and Economic Policy

Tran Van Hoa

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9780754643999
• eBook ISBN:
  9781351960670
• Topic: Economics
• Subtopic: Business General
• Index: Economics

This book considers recent advances in household economics, consumer behaviour and economic policy and examines their interrelationship and impact on growth, development, trade and welfare policy in world economies in the 21st century. Researched and written by authorities in these emerging areas from North America, the European Union and Australia/Oceania, the book has the timely advantage of bringing together in one place the development of diverse concepts and important applications in these areas. It is a must-have for academics, and will be used on advanced courses on household economics and production, demand analysis, economic policy, social security and welfare economics. It will also be of interest to trade and welfare policy-makers world-wide.

Part I:
Advances in Household Economics, Consumer Behaviour and Economic Policy

Chapter 1
Household Economics and Production, Consumer Behaviour and Economic Policy: Overview

Tran Van Hoa

1.1 Introduction

Economics was originally and literally a study of the household. Household economics is therefore not a new development. However, the concept of household and non-market economics and household production was pioneered or popularized only recently by the seminal contributions of several eminent economists. These include Gary Becker in the United States in the 1960s. Duncan Ironmonger with his work (1957-1960) at Cambridge University in England and in Australia, and Kelvin Lancaster (a United States citizen of Australian origin) in the early 1970s. Since then household economics and production have developed into an important area of modern economics incorporating market and non-market components with fast up-take worldwide in education, research and training.

Typical examples in education are: Missouri University's course on Consumer and Household Economics in the United States, Copenhagen University's course on Household Models for Development Policy Analysis in Denmark, and the Households Research Unit at the University of Melbourne in Australia. Examples in research and training include policy analysis units by universities, national statistical bureaus, research centres and institutes, and international organizations. Notable in the list are the United States Census Bureau, the Federal Reserve Bank of Minneapolis, Japan's Institute for Research on Household Economics, the United Nations, the Eurostat Household Production Satellite Accounts 2003, and the Office for National Statistics in Britain. A recent internet search using the Yahoo search engine provided about 800,000 listings on household economics and three times as many on household production.

Closely related to household economics are consumer behaviour (which crucially affects the individual decision-making process in the market place and also within the household), family formation including marriage, feminist economics and agricultural economics. In current analysis, these areas are playing an integral and increasing part in the formation of contemporary economic policy relating to growth, trade, social security and welfare in both developed and developing countries.

The work by Duncan Ironmonger, Director of the Households Research Unit at the University of Melbourne, is relevant to our present focus on this nexus and importantly to an elite group of internationally well-known economists working in the area. Ironmonger's extensive and often pioneering papers and manuscripts will ultimately be deposited in the National Library of Australia for preservation (see Appendix for a list of his publications). In spite of the growing importance of household economics and production and their deep link to consumer behaviour and economic policy, there is not yet a book containing recent conceptual and methodological advances and case-studies in this area.

This book is therefore a timely response which should fill this gap in the contemporary literature in economics and also in the analysis of micro and macroeconomic policy. This new kind of analysis, comprehensively covering both market and non-market sectors, is expected to have profound practical implications for household management, corporate planning, social security and welfare policy, government administration and international policy cooperation and coordination. Its major advances are discussed in the following chapters.

1.2 Scope of the Book

Tran Van Hoa begins Chapter 2 with a succinct survey of major aspects of the theory of household economics and production since its inception. He shows how they are related to elements of consumer demand theory and ultimately to economic and social policy at both the micro and macro levels. A number of case studies in developed and developing countries then illustrate the major recent developments and advances of the theories and their applications. For several reasons, the progress of household economics and production theory and practice has been regarded as slow, due probably to the chief difficulty of how to measure household production or unpaid work and its social worth. But current indications are that the theory has been finally recognised as a major component of modern economics and an essential part of social security and welfare analysis in a national and international accounting framework.

Chapter 3, by Marilyn Waring, is an e-conversation piece on fundamental and methodological issues of the household economics and production theory. Initially raised by Duncan Ironmonger in his work over the years, this chapter focuses on a major issue: How best to measure and value the unpaid work and output of household production which makes a major contribution to national income? Questions raised and discussed in the chapter deal with such practical issues as: Is the prevailing wage approach more appropriate than the opportunity cost method or is one method more reliable than the other? The chapter asserts that due to Ironmonger's work and contribution, certainly a start has been made and various national statistical agencies are incorporating unpaid work into their data-collection and analysis models. It also urges policy-makers to incorporate data on household production, however inexact or imperfect they may be, into economic models used to develop future policy scenarios in a wide variety of policy issues. These include education, health, transport, income maintenance, crime, poverty, deprivation, safer communities, policing, immigration, citizenship criteria, pension reform, and disability assistance.

Chapter 4, written by Shoshana Grossbard-Shechtman, presents a graphical model that shows how marriage market conditions can possibly affect reservation wages and therefore women's labour supply in an economy. It also looks at earlier market analyses of household production in marriage. The chapter finally elaborates on previous studies that found that marriage markets possibly affect women's labour supply via conditions in markets for women's work in marital household production.

Robin A. Douthitt discusses in Chapter 5 a major issue in household production, namely, how to get a good measurement for consumer durable goods in income accounting. The issue was raised initially by Duncan Ironmonger in 1989 in his influential work in developing an input/output (I/O) satellite account model to estimate an economy's invisible household production. While the United Nations has agreed upon international standards by which national income is measured, these measurements cover only that production sold through the market or provided by governments. This approach is misguided, argues Douthitt, because by excluding the value of household productive work that is unpaid, economic activity is significantly underestimated. She goes on to provide a methodological refinement and discusses measurement issues.

In Chapter 6, Andrew S. Harvey and Aran K. Mukhopadhyay claim that the effort to estimate the value of household non-market production has gathered momentum in recent years, due in no small part to the work and persistence of Duncan Ironmonger. They also assert that there is now a pressing requirement for economists and statisticians to develop feasible, valid and reliable methodologies to provide System of National Accounts (SNA)-compatible household non-market production valuations. Harvey and Mukhopadhyay go on to propose a shift from time-use (input)-based valuations to output-oriented non-market production valuations. They also discuss the progress and issues in the application of this new approach to the household sector of both developed and developing countries.

Chapter 7 is based on a previous work by Tran Van Hoa and Duncan Ironmonger in which they introduced a household market and non-market production approach to calculating equivalence scales (or relative costs) for policy analysis in Australia. The study has two important features of enduring interest. First, the underlying economic theory is the cost minimization method of Becker's household production analysis. Second, the scale measurements, disaggregated for the intrafamily demographic classes of adults and children, are significantly based on microdata or unit records from Australian household and time-use surveys. The findings are claimed to have set reference standards for further research with economic welfare policy orientation in Australia.

Hikaru Hasegawa, Tran Van Hoa and Rebecca Valenzuela co-authoredChapter 8 which is based on their earlier work and in which a new econometric and modelling approach to consumer demand or behaviour is introduced. This is intended especially to investigate the impact of the way the reference or benchmark income is modelled and estimated. It applies to practical social security or welfare policy formulation and implementation, especially in developing countries. The model is the so-called integrable and flexible HOGLEX (Homothetic Generalized Linear Expenditure) demand system proposed by Tran Van Hoa in the mid-1980s and derived from indirect utility maximization. The econometric methodology used for the study is the modern Bayesian analysis, an extension of the traditional Fisherian or frequentist statistical foundation. Another important feature of the study is the recognition that expenditure and income data available for this kind of investigation are potentially subject to measurement errors and therefore likely to generate biased or misleading results. The new approach and the model are then applied to unit records on household expenditure data from Thailand and the Philippines to illustrate the significance and impact of their approach on the findings. The results are then compared to the conventional and potentially misleading studies in social security and welfare policy analysis for a total of 20 socio-demographic cohorts in these two major Asian economies. The substantial discrepancy in measured income or total expenditure from the two approaches is noted and discussed.

In Chapter 9, Neville R. Norman shows how Duncan Ironmonger's significant contribution to consumer theory can be adapted to provide new and valuable insights for theoretical and policy analysis in international economics. He specifically nominates the concept of new commodities in the demand system and the dynamics of commodity quality change. He claims that, with some minor adaptations that were only sketched and illustrated in Ironmonger's original work, it is really surprising why such an application has not figured prominently in the literature of trade and tariff theory. He offers some answers to this problem and claims there is a substantial need for the economics profession or its younger generations to take note of Ironmonger's not yet fully realized contribution in future work.

In Chapter 10, William M. Wadman focuses on a particular aspect of modern consumer behaviour – the Giffen Phenomenon or Paradox. He discusses its special features, and introduces the concept of a commodity with variable quality into the model for analysis. Wadman writes that, well-known as central to the Giffen argument, is the existence of an income effect, corresponding to an inferior good, where the magnitude of the income effect overpowers the substitution effect. Typically then, this argument excludes any reference to variable quality, that is, quality is subsumed under the homogeneous assumption, and the level of quality of the inferior good (such as home-cooked meals) is assumed constant. Consumer decision-making in the new model that allows variable quality can now be explicitly studied. Wadman notes that, of all the authors involved in the development of the characteristics approach to consumer theory, none focused more on quality than Duncan Ironmonger (Wadman 2000: 62).

The role of agriculture in household economics or production seems to be unusual at first sight but recent studies have found that household and agricultural activities of an economy are, in fact and in figures, highly correlated. The implications are that the value of unpaid household work is larger, as a proportion of the combined market and non-market productive activities, in developing economies (that usually have a large agricultural sector) than in developed ones. Marc Nerlove argues, in Chapter 11, that this is not the whole issue, and discusses a contemporary phenomenon and its economic policy implications, namely, the so-called 'Law of the Declining Relative Importance of Agriculture' in Jorgenson and Lewis models of dual economic development. These models, to him, fail to understand the significance of the changing structure of the economy. He develops a Jorgenson model in the chapter and shows that, if general economic development is not to be choked-off by rising prices for food and other agricultural commodities, the rate of growth of total factor productivity in agriculture (or in household activities) must be higher than a weighted combination of nonagricultural technical change and population growth.

References

Wadman, W.M. (2000), Variable Quality in Consumer Theory: Toward a Dynamic Microeconomic Theory of the Consumer, M.E Sharpe, Armonk, New York; London, England.

Chapter 2
Advances in Household Economics, Consumer Behaviour and their Role in Modern Economic Policy

Tran Van Hoa¹

2.1 Introduction

Household economics, household production and their underlying foundation, consumer behaviour, have always implicitly played a major part in economic analysis and policy. The current interest by economists, sociologists, other experts and policy-makers in their development has promoted them into an important field of study. In this context, conceptual and methodological advances in these areas can contribute significantly to further enhance their positive economics role in governance and management.

This chapter has two parts. First, it gives a brief survey of the state-of-the-art of household economics and production and consumer behaviour and their relevance to contemporary economic analysis and policy at both the national and international...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• Editor's Biographical Notes
• Acknowledgements
• List of Contributors
• PART I: ADVANCES IN HOUSEHOLD ECONOMICS, CONSUMER BEHAVIOUR AND ECONOMIC POLICY
• PART II: HOUSEHOLD ECONOMICS, HOUSEHOLD PRODUCTION AND ECONOMIC POLICY
• PART III: CONSUMER BEHAVIOUR AND ECONOMIC POLICY
• PART IV: EPILOGUE
• Appendix: Select List of Publications by Duncan Ironmonger
• Index