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Ann Arbor, MI 48106 NONPARAMETRIC AND PARAMETRIC ANALYSES OF FOOD DEMAND IN THE UNITED STATES DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy In the Graduate School of The Ohio State University By Hwang-Jaw Lee, B.A., M.B.A. The Ohio State University 1990 Dissertation Committee Approved by Wen S. Chern, Ph.D. Joseph Havlicek Jr., Ph.D. Cameron S. Thraen, Ph.D. Wen S. Chern, Adviser Department of Agricultural Economics and Rural Sociology DEDICATION To Hy Parents II ACKNOWLEDGEMENTS Achieving goals In life Is often Impossible without others. Numerous Individuals helped me 1n my development process. I wish to express my gratitude for their assistance. I extend my sincere appreciation to Dr. Wen S. Chern, my advisory committee chairman. I have greatly benefltted from his guidance and encouragement during my studies in the United States. Furthermore, his advice, criticism, as well as many suggestions are all necessary and extremely helpful Inputs to the completion of this research. Sincere thanks are extended to my committee members, Dr. Joseph Havlicek Jr. and Dr. Cameron S. Thraen for their helpful comments and suggestions. I would like to express special thanks and gratitude to the Department of Agricultural Economics and Rural Sociology and the Ohio Agricultural Research and Development Center (OARDC) for the financial supports during my Ph.D studies at The Ohio State University. Appreciation is also extended to the Instruction and Research Computer Center (IRCC) at The OSU for providing computer facilities and services for the completion of this research. Special thanks are expressed to my parents, brothers, and sisters in Taiwan for providing the love and support throughout my childhood and adult years. Finally, I express my deepest appreciation, gratitude, as well as love to Grace Chen, for her understanding, patience and encouragement while I struggled to complete this dissertation. Ill VITA August 28, 1957 .............. Born - Tainan, Taiwan 1979 ...................... B.S., National Chung-Hsing University, Taiwan 1979-1981 ................... Second Lieutenant, Military Service, R.O.C. Army 1981-1986 ................... Teaching Assistant, Department of Agricultural Marketing, National Chung-Hsing University, Taiwan 1983-1985 ................... M.B.A., Institute of Graduate Studies in Business Administration, Tunghai University, Taiwan 1986-1987 ................. Research Assistant, Department of Textile and Consumer Economics, University of Maryland 1987-1990 ................... Graduate Research Associate, Department of Agricultural Economics and Rural Sociology, The Ohio State University PUBLICATIONS Hwang-Jaw Lee and Wen S. Chern, "Effects of Different Income Sources on Food Expenditures," Working Paper, Department of Agricultural Economics and Rural Sociology, The Ohio State University, September, 1990. Hwang-Jaw Lee and Wen S. Chern, "Can We Use Aggregate Subgroup Data from BLS's Consumer Expenditure Surveys in Demand Analysis?" Working Paper, Department of Agricultural Economics and Rural Sociology, The Ohio State University, January, 1990. Hwang-Jaw Lee and Wen S. Chern, "Nonlinear Regression for Estimating a Quadratic Expenditure System," Proceedings of Business and Economic Statistics Section. American Statistics Association, 1990. IV Hwang-Jaw Lee, "Estimation of The Demand for Food at Home and Food Away from Home," paper presented at the Third Annual Graduate Research Forum at The Ohio State University, Columbus, OH, April 15, 1989. Wen S. Chern and Hwang-Jaw Lee, "Nonparametrlc and Parametric Analyses of Food at Home and Food Away from Home," Paper presented at the 1989 Annual Meeting of the American Agricultural Economics Association, Baton Rouge, Louisiana, July 28 - August 2, 1989. Wen S. Chern and Hwang-Jaw Lee, "Complete Demand System of Nondurable Goods and Services," Proceedings of the 35th Conference of American Council on Consumer Interests. 1989. Wen S. Chern and Hwang-Jaw Lee and Horacio Soberon-Ferrer, "Estimation of Complete Demand Systems: A Comparative Analysis of Aggregate vs. Household Level Data," paper presented at the Annual Meeting of the Allied Social Science Association (ASSA), New York City, December 28-30, 1988. Wen S. Chern, Soberon-Ferrer Horacio and Hwang-Jaw Lee, "Estimation of Price and Income Elasticities of Energy and Oil Demand in LDC's," Proceedings of Ninth International Conference of International Association of Energy Economists. 1987. Hwang-Jaw Lee, "Risk and Investment Decision," Journal of Taiwan Economy. No. 110, February, 1986. (in Chinese). Hwang-Jaw Lee, The Impacts of Business Marriage on Shareholders' Wealth. Master Thesis, Institute of Graduate Studies in Business Administration, Tunghai University, 1985. (in Chinese). Hwang-Jaw Lee, "Multiple Attribute Utility Theory and It's Applications for Consumer Purchasing Decision," Journal of Taiwan Economy. No. 99, March, 1985. (in Chinese). Hwang-Jaw Lee, "Dynamic Pricing Strategy -- An Application of Learning Curve and Diffusion Curve, Journal of Taiwan Economy. No. 95, November, 1984. (in Chinese). Hwang-Jaw Lee, An Economic Study on Direct Sale Marketing of Fruits and Vegetables in Taiwan. Technical Report, Department of Agricultural Marketing, National Chung-hsing University,June, 1983. (in Chinese). Hwang-Jaw Lee, "The Export Development of Canned Sea Foods in Taiwan," Quarterly Journal of Bank of Taiwan. Vol. 30, No.3, September, 1979. (in Chinese). V FIELDS OF STUDY Major Field Agricultural Economics, Demand and Consumption Analysis .... Prof. Wen S. Chern Prof. Leroy J. Hushak Prof. Alan Randal1 Minor Field Econometrics and Statistics .... Prof. Stephen R. Cosslett Prof. Adrian C. Cameron Prof. Irigmar R. Prucha Prof. Joseph S. Verducci Prof. Mike Flinger Family Resource Management and Consumer Economics ..... Prof. Nancy M. Rudd Prof. Sherman Hanna Prof. Kathryn Stafford Prof. Rachel Dardis VI TABLE OF CONTENTS DEDICATION ........................................ II ACKNOWLEDGEMENTS .................................. Ill VITA ........... IV TABLE OF CONTENTS .............................. VII LIST OF FIGURES .................................... X LIST OF TABLES ..................................... XII CHAPTER PAGE I INTRODUCTION ................................... 1 1. Statement of Problem ......................... 2 2. Objectives of The Study ....................... 6 II THEORETICAL AND EMPIRICAL CONSIDERATIONS ......... 7 1. The Neoclassical Consumer Demand Theory ........... 7 2. Empirical Considerations ...................... 9 1) Data consistency „..... „............... 10 2) Functional f o r m ........................... 12 3) Aggregation problem ........................ 15 a) Aggregation over coranodities ................ 15 b) Aggregation across consumers ................ 17 4)Demographic variables ....................... 19 III LITERATURE R E V I E W ...... ................... 22 1. Single Equation Food Demand Studies .......... 23 2. Engel Relationships Studies ...... 25 3. Food Demand Elasticity Matrix Studies....... 28 4. Complete Demand System Approach ................. 31 5. Concluding Remarks ........................... 35 IV DATA SOURCES AND DESCRIPTION...... ................ 37 1. Data Sources ................................ 37 2. Data Description............... 43 VII V METHODOLOGY ................................... 54 1. Nonparametric Approach ........................ 56 1) Testing of data consistency .................. 57 2) Testing of rank in the demand system ........ «... 59 3) Factor and clustering analysis for commodity grouping 64 2. Parametric Approach ........... ............... 71 1) Estimating demand equations under two>stage budgeting 71 2) Testing of model specification