Tests of the generalized composite commodity theorem: An econometric analysis using dairy products POS data
2019
Sato, H. (Hitotsubashi University (Japan). Institute of Economic Research)
Empirical analysis of food demand based on microeconomic theory is often implemented at some level of product aggregation. Improper aggregation, however, leads to biased estimates of demand elasticities, market power, or social welfare. Lewbel's (1996) GCCT (Generalized Composite Commodity Theorem) test provides a means effective for appropriate aggregation. The GCCT is tested using dairy products POS data, and the independence between aggregated log-price index and relative log-price is rejected in most products. Results suggest that aggregating individual dairy product is not consistent with consumer theory.
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