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A systematic approach for incorporating taste variation into a revealed preference framework for heterogeneous consumers is developed. We create a new methodology that enables the recovery of the minimal variation in tastes that are required to rationalise observed choice patterns. This approach is used to examine the extent to which changes in tobacco consumption have been driven by price changes or by taste changes, and whether the significance of these two channels varies across socioeconomic groups. A censored quantile approach is used to allow for unobserved heterogeneity and censoring of consumption. Statistically significant educational differences in the marginal willingness to pay for tobacco are recovered. More highly educated cohorts are found to have experienced a greater shift in their effective tastes away from tobacco.
Authors
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Research Associate University of Copenhagen
Martin is an IFS Research Associate, a Nuffield Senior Research Fellow and a Professor of Economics at the University of Oxford.
Ian Crawford
Research Fellow University of Oxford
Abi's research sits within Applied Microeconomics, often focused on the econometrics of consumer and family choice.
Working Paper details
- DOI
- 10.1920/wp.ifs.2015.1511
- Publisher
- IFS
Suggested citation
Adams-Prassl, A et al. (2015). Prices versus preferences: taste change and revealed preference. London: IFS. Available at: https://ifs.org.uk/publications/prices-versus-preferences-taste-change-and-revealed-preference (accessed: 19 April 2024).
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