Econometrica: Jan 1980, Volume 48, Issue 1
The Estimation of the Prais-Houthakker Model of Equivalence Scales
John MuellbauerGiven a preference basis for the model, a household's general equivalence scale is seen to be a cost of living index relative to the reference household type defined at constant prices. A maximum likelihood estimation procedure which can be applied both to cross-section data and pooled time-series/cross-sections is derived. The lack of identification of the model is established theoretically and checked empirically on British family expenditure survey data. With prior information, e.g. a nutrition based food scale, identification can be reached but ultimately the model is rendered implausible because of its zero substitution implication and the empirical results bear this out.
Log In To View Full Content