Application of several econometric techniques to a theory of demand with variable tastes

Existing theory of consumer demand does not contain a body of theorems purporting to explain the consumption behavior of individuals when their preferences are changed, either autonomously or by advertising and other forms of selling effort. In view of the importance of advertising in the modern economy, it is desirable that such a body of theorems be worked out. The objective of this study is the formulation of a theory of consumer demand with variable preferences; the governing criterion is that the theory be applicable in econometric demand analysis;The assumption that the individual consumer has only one ordinal utility function is replaced by the assumption that he has a whole family of ordinal utility functions; advertising expenditures by sellers of commodities are assumed to determine which one of these ordinal utility functions is maximized. From these assumptions are derived a number of a priori restraints on measurements defining advertising elasticities of demand. It is shown that advertising elasticities are weighted averages of elasticities of substitution between goods in consumption, the weights being measurements defining advertising elasticities of marginal utilities;Estimates of empirical advertising elasticities of demand for tobacco are presented along with estimates of the elasticity of marginal utility of tobacco with respect to advertising expenditure. The computation of these estimates serves as an example of the application of the theory to problems of econometric demand analysis

"Patent Activity and Technical Change"

This paper presents an aggregate production function of the generalized Fechner-Thurstone (GFT) form to analyze the impact of an important component of intellectual industrial property, namely patent activity, on technical change in the USA for the period 1947-1981. We define a technology-changer as a variable that has an impact on the elasticity of the marginal rate of technical substitution (mrts) between inputs of the GFT production function over time. Various types of US patent grant activity, specifically total, domestic, foreign, successful and unsuccessful patents, are used as instruments for the technology-changer. Using the GFT specification, the impacts of various technology-changers on the elasticity of the mrts between inputs are estimated directly. It is found that granted (or successful) patents, patents granted to foreign companies and individuals, total patent applications, and even unsuccessful patent applications, have significant impacts on the rates at which inputs are substituted for each other over time in production.

A Theory of Serial Correlation of Stochastic Taste Changers in Direct Utility Functions

Methods of maximum-likelihood search (eg., Hildreth-Lu) for single equations models with autocorrelated disturbances are not easily extended to the multi-equation systems encountered in econometric studies of consumer demand. The obstacle is the large dimension of the space of independent serial correlation coefficients to be partitioned and searched. This paper treats stochastic disturbance vectors in demand/expenditure systems as functions of random disturbances in consumer utility functions. It specifies marginal utilities to be products of a systematic function and a nonnegative random disturbance. Under this specification, three hypotheses that readily come to mind in the context of consumer theory drastically reduce the number of independent elements of serial covariance matrices. This in turn makes practicable the extension of maximum-likelihood search methods in the estimation of parameters of large demand systems.

Patent Activity and Technical Change

This paper presents an aggregate production function of the generalized Fechner-Thurstone (GFT) form to analyze the impact of an important component of intellectual industrial property, namely patent activity, on technical change in the USA for the period 1947-1981. We define a technology-changer as a variable that has an impact on the elasticity of the marginal rate of technical substitution (mrts) between inputs of the GFT production function over time. Various types of US patent grant activity, specifically total, domestic, foreign, successful and unsuccessful patents, are used as instruments for the technology-changer. Using the GFT specification, the impacts of various technology-changers on the elasticity of the mrts between inputs are estimated directly. It is found that granted (or successful) patents, patents granted to foreign companies and individuals, total patent applications, and even unsuccessful patent applications, have significant impacts on the rates at which inputs are substituted for each other over time in production.Journal of Econometrics. 掲載予定