Food Demand and Intertemporal Allocation of Food Expenditure

By H. Youn Kim and K. K. Gary Wong
Forthcoming in Economic Analysis and Policy

Abstract:

Existing studies on food consumption often ignore nonfood and fail to account for intertemporal allocation of food expenditure, which leads to a biased inference in food consumption analysis. To address this issue, the present paper proposes an integrated analysis of food demand and intertemporal food consumption via intertemporal two-stage budgeting with nonfood. A restricted indirect utility function is specified conditional on food expenditure with given nonfood, and unrestricted demand functions are derived for food and nonfood by endogenizing their expenditures with income. From intertemporal optimization with the restricted indirect utility function, Euler equations are derived for food expenditure and nonfood, and jointly estimated, using annual time series U.S. data for 1959–2019, with demand functions with nine food items and aggregate nonfood. Then restricted and unrestricted demand elasticities are estimated for food and nonfood, and various intertemporal issues are analyzed. Overall, this study provides novel and useful results relative to previous studies, and underscores the importance of an integrated analysis of food consumption.