UNIVERSITY OF PISA
SANT'ANNA SCHOOL OF ADVANCED STUDIES
Master of Science in Economics Corso di Laurea Magistrale in Economics
Master Thesis
DIVERSITY OF CONSUMPTION:
AN EMPIRICAL ANALYSIS OF THE ITALIAN DATA
Tesi di Laurea Magistrale
Thesis Supervisor Prof. Alessio Moneta
Candidate
Piermario Di Grazia
ABSTRACT
The aim of this work is to present the topic of the diversity of consumption, the issues to which it relates and the economic theories in its regard, from the first attempts to explain to the most current. Continuing through an empirical analysis of the Italian data provided by ISTAT in 2015, referring to the monthly consumption of households. the analysis will start from the construction of a mathematical model to compute a dispersion index to apply to the data, and continue with the implementation of some regressions, using the statistical software R, in order to verify how the allocation of income is dispersed among the various categories of spending. In particular food commodities, non-food commodities, its subcategory of luxury goods, and finally the totality of goods will be analyzed. All this will culminate with the formulation of some hypotheses, in the light of the obtained results, to try to give possible interpretations to a still partially uncertain question. The last part of the empirical analysis will instead concern how the dispersion among the less numerous and the most numerous families is distributed.
INDEX
1. Introduction...5
2. Diversity of Consumption...7
3. Methods and Data...17
4. Empirical Results...23
5. Conclusion...43
1.
Introduction
Diversity of consumption is an important topic as it is linked to some relevant national and international issues, such as GDP, nutrition, innovation, economies of scale and international trade. Over the course of history, many studies and theories have followed about the diversity of consumption; many economist, through empirical analysis, have tried to identify some regularities in the consumption patterns. They reached important and interesting results, sometimes confirming the previous theories, sometimes developing them; however, the consumption laws, remain something still obscure.
After a more general initial look at these issues, how they are linked with the diversity of consumption and the economic theories; our analysis will focus on a sample of data provided by ISTAT1,
regarding the monthly consumptions of 15000 Italian families in 2015. We will begin by dividing the database into four different datasets, regarding household expenditures on food, non-food, luxury and total commodities. Thus, we will start the empirical analysis with the setting up of a model that includes the computation of a "budget share" for each commodity and calculated for each family, which provides the portion of the budget spent by each family for each commodity on the total expenditure2 for the given
category of goods. From the budget shares, we calculate an index of dispersion for each household, which will tell us how varies the
budget share on a certain asset category. After we will conduct different regressions, putting in correlation the indices of dispersion with the total expenditure, that will lead us to analyze the revenue allocation over the different categories of spending. In particular we will focus on the dispersion concerning food and non-food commodities, with an additional look to the subset of the luxury goods, trying to provide economic and sociological explanations to the different patterns of consumption. In the last part we will take a look on how the dispersion among the less numerous and the most numerous families is distributed, dividing households in two distinct aggregate groups, i.e. those consisting of 1, 2 and 3 members and those made up of 4, 5 and 6 members; in this way we will conduct regressions on the three macroclasses of assets.
2.
Diversity of Consumption
2.1. Important Topics; 2.2. Economic Theory
2.1. - Important Topics
The consumption patterns of a country is an important issue to analyze, for a number of reasons; first of all because the total consumption absorbs more than half of GDP in most of the developed countries (Clements et al., 1994) and, for this reason, it has a great meaning for the state of the business cycle. The following graph shows the percentage of GDP absorbed by consumption in some developed countries.
Figure 1. International comparison of consumption as a percent of GDP
Source: World Bank (2013)
According to the graph, the most developed countries in the world are consumption-based societies, where the expenditures on goods and services are necessary for the economic health. In countries like
U.S., over the last century, non-essential consumption has evolved, starting as a privilege for a few people to a necessity; increasing consumption, in most of the developed countries, is essential to keep the economy growing. For this reason, the governments, financial institutions and corporations encourage people to consume; for example, after the Great Recession of 2008-2009, the federal government implemented a series of aids to keep the financial institutions safe, in order to stimulate the consumption. In the following graph are shown how the U.S. consumption is composed.
Figure 2. American consumption composition
Source: Bureau of Economic Analysis (2012)
What is surprising is that, Americans, spend more for “Recreation and entertainment” than they spend for food consumption; this is a possible sign of what it is called, by the German economist and sociologist Thorstein Veblen, the “conspicuous consumption”; that is, the social behavior to purchasing goods and enjoying services, for the conscious function of showing the differences in the social status.
There are also some developing and poor countries with a high percentage of GDP absorbed by consumption, such as a lot of African, South American ad Middle East countries; that is explained by the fact that in these countries the levels of investments are low and the most of the GDP is represented by consumption.
However, there are notable differences for what that concerns which are the sectors of consumption in the developing and developed countries; the graph below shows the different categories of consumption, starting from the poorest to the richest countries in the world.
Figure 3. Share of consumption by sector and consumption segments
Source: World Bank (2010)
As we can observe, the most of the consumption in the poor countries is represented by the food consumption, instead, in the rich countries, the food consumption has just about the same percentage of other types of consumption.
Another aspects for which it is interesting to analyze the consumption patterns, paying attention only on the variety in food consumption, is for what that concerns nutrition: nutrient levels vary among foods, and understanding the demand for food can be
important to understand the nutrient intake levels (Lee and Brown, 1989). There exist some nutrient intake standard levels, which is a set of reference values for diet in the population and in the single healthy individual that vary along aging. They are based on biological criteria and formulated on the basis of the opinion of a committee of experts3. An example of these intake levels is shown
on table 1.
Table 1. Dietary Reference Intake: Recommended Dietary Allowance and Adequate Intake
Source: Health Canada (2008)
This is a reason for why we can find a vary demand for food also among people with low income: even at low levels of income, some kinds of more expansive food, such as meat, should be consumed. However, if, in the poor countries, the greatest part of the income is dedicated to the food expenditure it does not mean that people in those countries achieved the standard nutrient intake levels; the graph below, shows that, the countries with a high percentage of
food spending are those countries where children suffer more by malnutrition.
Figure 4. Annual income spent on food and juvenile malnutrition
Source: Washington State University (2008)
The size of the country represents the percentage spent on food, the darker the color, the higher the rate of malnutrition.
Understanding how the allocation of the income changes between different components of consumption and, if this variety changes according to an increase in income, it is also important because it can lead to changes in the industrial composition (Pasinetti, 1981; Saviotti, 2001; Metcalfe et al., 2006; Foellmi and Zweimuller, 2008). In particular, the economy structural changes, that entail the reallocation of the employments and capital across sector, are
strictly linked to the households spending composition; this phenomenon is clearly shown in the transition from agricultural economy which dominates the low income societies, where the most of the household spending is devote to food, to the industrial one. When households become richer, they move their spending beyond basic necessities, so the growth rate of manufacturing and services industries begins to increase; according to this a positive feedback-loop emerges between the evolving patterns of demand and the structural changes, which drive up households income (Chai, 2016). The diversity of consumption along with the increasing in income affects also the innovation, because, in some sectors, the rising in demand can bring to devote more resources to the R&D activity (Foellmi and Zweimuller, 2006). In addition to this, when the households cease to concentrate their spending to some goods and services that appear to have reached their “saturation” levels, the associated slowdown in demand growth stimulates inventive activity and this leads to innovation in a particular sector, to create new and better quality goods and services (Witt 2001, Falkinger 2001).
Another aspect, is the influence on the realization of economies of scale (Bresnahan and Gambardella, 1998; Lipsey et al., 1998). In some countries the expenditures are concentrated, most of all, only a few categories of products, such we have seen for the food consumption in the poor countries. This circumstance can limit the realization of economies of scale; while in countries where the diversity of consumption is greater, many economies of scale are present. If the consumers prefer variety in consumption and there are economics of scale, there are the basis for trade between countries; international trade increases demand and the companies
benefit from demand for variety of goods.
The international trade is another aspect influenced by the diversity of consumption (Hallak, 2010). Hallak examined world trade flows for 116 differentiated sectors and noted that, in the high income economies, where the demand for high quality goods is higher, the so called “Linder Hypothesis” is stronger. In according to this hypothesis, two countries with similar income per capita, tend to trade with each other, because of similar preferences; in other words, two high income countries, where consumers tend to spend more on a particular luxury goods, are more likely to trade with each other than with low income countries (Linder, 1961).
2.2. - Economic Theory
The economic theory, regarding the spending variety, has not so far origins in history; the first economist, or more probably one of the first ones, to have taken in into account this issue, was the German economist Ernst Engel, who, in 1857, released what that became known as "Engel's Law". According to this law, when people are getting richer, the increasing in their income is greater than the increasing in the expenditure on food commodities. In stating this, he analyzed the budget of 199 Belgian households, showing that, while the demand for basic commodities, such as food commodities, was showing a lesser growth rate in respect with the income; the one for luxury good was increasing in the same way as income. Finally, he stated that , the poorer is the family, the more will be the percentage of its revenue on food (Die Lebenskosten belgischer
shows the evidence of the "Engel's Law" assert for which, when the income raises the food expenditure declines.
Figure 5. Percent of per capita disposable income spent on food in the U.S. (1960-2014)
Source: USDA, Economic Research Service (2015)
As it shown, the expenditure on food away from home, on the contrast, tends slightly to increase with the increasing in income, that can be explained with the tendency of people who, becoming richer, prefer to use restaurants and similar channels to feed themselves (we will return to this topic in the empirical section). In more recent times, along with the advancements on econometric and technological methods, as well as the availability of better and more detailed database, this issue has attracted the attention a large number of economists. Many economists have carried on the theories of Engel, such as A.Moneta and A.Chai, in whose analysis on the Engel curves, they pointed out that the households total expenditure is distributed on the spending categories in an incremental way with the increasing in income. Furthermore, they have highlighted that there is an acceleration over time in the rate at
which, the expenditures of the households become diversified (Moneta and Chai, 2011). Coming back to saturation levels, it is also interesting, the research conducted by A.Moneta and C.Manig, on the food Engel curves in Russia; where they observed that, when families become more wealthy, their food budget shares tend to decline, offering an additional evidence of saturation on quantity of consumed calories (Moneta and Manig, 2014).
Other econometricians as Henri Theil have suggested, in the last decades, using entropy and indices, such as the Hirschman-Herfindahl index of budget shares, that diversity of consumption increases when income increases (Theil and Finke, 1983), that was consistent with Engel's Law. Others econometricians, Jonq-Ying Lee and Mark Brown, agreed to Theil theories, using for their analysis on variety of consumption, the Simpson index, in addition to entropy. Their results show that, an increasing in expenditures on a single consumption category is accompanied by an increasing in the number of individual goods consumed in that category. Through the empirical evidence, they have demonstrated that the number of food goods consumed responds definitely to household expenditure on all foods (Lee and Brown, 1989) and, with an increasing in income, the diversity on food consumption grows.
More recently, an important point has been reached by the latest study of Andreas Chai in 2017; in an analysis on households consumption of the United Kingdom, in the 1999-2000 years, he points out how the heterogeneity of households expenditures grows with the increasing of income, and then begins to decrease once reached a certain level of income, when the households concentrate
their spending on particular categories. In doing this analysis, he used diasaggregated data, arguing that, the previous literature has ignored this possibility of decreasing was masked by high levels of aggregation in the cross-country data. Households spending patterns on the more disaggregated level show that, high income households tend to concentrate their expenditures into particular spending categories. Because each household concentrates into different types of expenditure categories, diversity of household consumption can increase at the aggregate level while it declines at the individual level (Chai, Kiedaisch, Rohde, 2017).
3.
Methods and Data
3.1. - Index of dispersion; 3.2. Data; 3.3. Nonparametric methods
3.1. Index of dispersion
In order to see how the expenditures of each family are distributed on the various types of commodities, we computed an index of dispersion for each household on three different macroclasses: Food commodities, Non-Food commodities and Total commodities. To compute the index, we started from the calculation of the "budget share" for every commodities and households, in each of the three macroclasses. We computed the "budget share" as follows:
(1)
Where: i is the commodity, and K is the macroclass (Food, Non-Food, Total). This budget share is calculated for every commodity and for each family, and shows the share of expenditure of a certain macroclass of goods devoted to the individual commodities that compose that macroclass.
An example of one of the computed budget share is shown in the following table:
Table 2. Frame from a "budget share" dataset
From the budget share we compute the "index of dispersion" in the following way:
(2)
Where: wi is the computed budget share for good i.
The resulting indices of dispersion are, afterwards, correlated with the income in order to get the regressions and analyze their trends on the three macroclasses.
BS_Bread BS_Breadsticks and crackersBS_Pasta BS_Rice - - 0,05 - 0,04 - 0,01 0,01 0,07 0,01 0,03 - 0,11 0,02 0,04 0,01 - - 0,02 0,01 0,11 0,01 - - 0,05 - - - 0,09 0,05 0,04 0,01 0,06 - 0,01 - 0,01 0,01 0,02 0,01 0,10 - 0,06 - 0,06 0,02 0,07 0,03
the following example shows the maximum and the minimum of the index:
if:
if the categories for the food commodities are 97
so:
Another way to construct this model is computing the, so called, “Theil Index”, which is the index primarily used in statistics to measure the economic inequality and other economic phenomena, calculated in the following way:
However, our database entails values in which the expenditure of a household on a certain asset is equal to zero, whose logarithm is impossible to calculate, and eliminating families with “zero expenditures” would have reduced the database to a few families. These reasons have led us to ignore this kind of index.
3.2. - Data
The construction of the model begins from the analysis of the ISTAT database on the monthly household consumption, for the year 20154;
this database covers a sample of about 150005 Italian families,
located on the rows, and their expenditures on goods, located in the columns; the families are also divided by number of members, from one to six. The object of the survey is all the expenses incurred by the resident families to purchase goods and services for family use. This definition also includes the goods that come from his or her farm directly consumed by the family (self-consumption) or given, the goods and services provided by the employer to employees for wages or services, estimated rentals of dwellings occupied by the owners or enjoyed free of charge (figurative rentals). Any other expenditure spent by the family for purposes other than consumption is excluded from the survey (for example, buying a house and land, taxing taxes, costs associated with professional activity). Lastly, it should be noted that some of the expenses incurred in the survey (relating to mortgages for the sale of houses and the repayment of loans with banks or financial companies or with relatives or friends) are not part of the economic concept of consumption which represent forms of investment) and are therefore not included in the calculation of the expense.
The reference population consists of the resident families and the individuals they make up. The detection unit is the family of fact, understood as a group of co-habiting persons, linked by marriage or kinship, affiliation, adoption, protection or affiliation, and which
4 https://www.istat.it/it/archivio/180356
share the family's expenditure and/or share at least part of the family income. Therefore, people living permanently in communities (barracks, hospitals, religious institutes, etc.) are excluded from the reference population. An example of the layout of the database is shown in the following table:
Table 3. Frame from the ISTAT Database
From this database we extracted three more datasets: one on the food expenditure, a second on the non-food expenditure and a third on the totality of expenditure.
3.3. - Nonparametric methods
In doing the regressions on the model, we opted for nonparametric kind of regression, using the statistical software R. The motivations behind this choice come from the assumption that the misspecification of a parametric model implies that information of structural nature might be masked, because in the parametric model the functional shape of the estimator it is just given by the assumptions, by which depends the quality of the results. However, in case of a correct model, a good estimators can be obtained with parametric estimate; by the way, in the case of a misspecified model, the resulting estimator is not consistent (Engel and Kneip, 1996). For avoid this problem related to predetermined functional relations, we chose to do nonparametric regressions, often used in
Bread Breadsticks and crackers Pasta Rice
- € - € 13,97 € - € 17,28 € - € 6,44 € 4,49 € 45,16 € 4,51 € 17,62 € - € 36,86 € 6,99 € 13,56 € 4,95 € - € - € 6,46 € 4,02 €
recent analysis, because it moves away from the assumption of a particular functional shape that is replaced by the more general
smoothness assumption, which says that, a certain degree of
function must be estimate. Thus, the nonparametric method permits to data to determinate the shape to estimate (Engel and Kneip, 1996).
4.
Empirical Results
4.1. Food commodities; 4.2. Non-Food commodities; 4.3. Total commodities; 4.4. Households members
4.1. - Food commodities
The first empirical result we are going to analyze are the ones on the food expenditure in Italy for the year 2015.
Food commodities, in our dataset, all refer to goods of primary necessity; in general, they have a positive but less than proportional elasticity to income (0>η>1). Thus, an increasing in income increases the quantity demanded of the commodity less than proportionally. The following figure represents the dispersion on the Engel curve for our dataset. (The referring values are expressed in euro.)
The figure shows an increasing shape in the initial part of the graph, then, at a certain level of income starts to be flat; this partially reflect the assumption of the "Engel's law" for which, the expenditure on food commodities begins to decrease in according with the increasing in income.
In the Figure 7 is shown the correlation between the income (expressed in euro) and the index of dispersion for food commodities (expressed in percentage). For the whole results we took an interval of two standard deviations, in order to exclude the non-significant values from the regression.
Figure 7. Correlation between total expenditure and dispersion on food expenditure
Starting from this graph, we can observe an almost flat nonparametric curve, from which results a non-significant increasing on the dispersion in the expenditures on food
commodities with the increasing in income. In the light of Engel's Law on alimentary consumption, the more a family is poor, the greater the share of income destined for the purchase of essential goods such as food. Consumers do not increase spending on food commodities but increase their consumption choices towards higher or luxury goods. Expenditure on essential goods such as bread or milk, for example, does not grow in the same proportion as the income grows: beyond a certain threshold, if a family doubled its income, it would also hardly double the consumption of these goods. At the same time, however, if income increases, some inferior goods, such as the potatoes consumed as a substitute for meat, or as it may still happen in the case of low-quality meat cuts, will be replaced by other quality goods higher. For this reason, at low levels of income we can notice a slight increase in the dispersion of food commodities, which will tend to stabilize once it reaches a certain level of income. Thus, there is an initial increasing in the food dispersion along with the increasing on income, then when the families are getting richer, they tend not to disperse their income on food categories, even they could do it. Also the economists Taylor and Houthakker came across this phenomenon; explain that there are not physiologic factors which push families to these choices, admitting that, even the consumer behavior is no less predictable than most other economic behaviors, the nature of the laws of consumption is something obscure (Taylor and Houthakker (2009).
Personally, this phenomenon can be linked to a certain degree of "rationality": at low income levels, families tend to concentrate their food budget shares on low quality foods but with high nutritional
levels; once income begins to increase, families begin to disperse their food budget shares on different foods, substituting low-quality foods with a more varied range of foods; this trend, with the continuous rising in income, will tend to stabilize, for the reason that, households, once established foods that satisfy their nutritional standards, tend to concentrate their food expenditure on those foods.
Another factor that may explain this result, is probably the fact for which, at higher levels of income, people tend to use alternative food channels more frequently, such as restaurants, which do not entail a direct food expenditure. Such we have seen for the U.S. in the second chapter, the following graph shows the trend of the “away from home” food consumption in Italy.
Figure 8. Away from home food consumption trend in Italy
Source: Agrifood Monitor elaborations based on Istat and Eurostat data
The figure clearly confirms the tendency to increase the consumption of food away from home along with the increasing in income. Among the factors that bring individuals to this choice, as
well as the rising in income, there may also be a better quality of restaurants and fast foods in recent times. This tendency can contribute to the flatness of the regression line in the food commodities result.
Further reason may be the spread of new diets, such as vegetarian one, that brings people with a high spending budget to focus only on particular products such as fruit, vegetables, or biological products. In the graph below we see how in Italy, in 2015, has increased the consumption of dietary foods, such as fruit and vegetables, while the consumption of high protein foods, such as meat, has decreased.
Figure 9. Food sales value trend by product type (variation 2014-2015)
Source: Nielsen (2016)
Finally, it would be interesting to include in the analysis non-essential food commodities, not present in the database, such as
caviar, champagne, lobster, high-quality food and beverages. Surely the index of dispersion would increase rapidly as the income increases, because there are luxury foodstuffs which are still inaccessible to the low-middle class, even in modest quantities, such as, for example, a bottle of prestigious champagne.
4.2 – Non-Food commodities
The upcoming results are referred to non-food commodities.
As far as the non-food goods of our dataset are concerned, they contain categories of normal and luxury goods, whose elasticity with respect to income is positive (η> 0 or η> 1), thus, an increasing in income should increase the amount demanded of goods. The following figure represents the dispersion on the Engel curve for our dataset. (The referring values are expressed in euro.)
Unlike the previous relation between the food and total expenditure, the one regarding non-food expenditure, shows a steep increasing shape, confirming the "Engel's Law" for which, with the increasing in income the expenditure on non-food commodities increases accordingly.
In the figure 11, instead, is shown the correlation between the income and the index of dispersion on non-food commodities.
Figure 11. Correlation between total expenditure and dispersion on non-food expenditure
The figure clearly shows the implications of the Engel's Law on non-food consumption: once the primary requirements are met, any increase in income will probably be used to purchase non-essential goods that include all other types of expense: housing, fuel and electricity, furniture and household goods, health services, transport, communications, education, leisure and culture, luxury goods, other
goods and services. As a result, increased diversity will be recorded in this kind of non-food goods. This increasing in dispersion is also related to the number of members of individual households. Different is also the income perceived by different types of households, since individual households have income from work or retirement of a single person, while families with five or more components often have an income consisting of two salaries, and therefore significantly higher. Families with children will have diversified costs compared to those without children, such as all the components of school education (primary, secondary, university, books, school trips, school meals, etc.), totally absent as regards families composed by a single person.
Another consideration to do, is to live in an age where the living standards of families are higher and the society is richer than previous generations. For example, families now live in more well-equipped homes than a few decades ago, utensils such as dishwashers, if they were previously considered as luxury good, are now easily accessed in the homes of married families. The same argument applies to a wide variety of products that many households nowadays consider almost "indispensable", such as televisions, DVD players, microwave ovens, washing machines, dryers, vacuum cleaners and air conditioning systems. Thus, when income starts to increase, household spending will be dispersed on this range of housing products.
Then, there are those expenditures regarding leisure or due to some particular passion on which spare time and the increasing in income lead to the dispersion of spending; just to name a few from the database, we have: musical instruments, billiard tables, binoculars, microscopes, cameras, sports accessories, events, shows and leisure
media. Clearly, they can be regarding children in the larger families. Another factor that can explain this rise in the income-based dispersion index is the fact that Italian households are influenced by advertising messages, these messages focus on a wide variety of products. Thus, the patterns of consumption are strongly influenced by the media, not only through advertising, but, more generally, what the film industry and television transmits, consumer patterns that are transmitted by the show business. In the figure below we can see how the advertising pressure is strongly increased in Italy, from 2000 to 2015, almost doubling the percentage.
Figure 12, % Share of promotional pressure
Source: Nielsen (2016)
One last consideration regards, as we have already mentioned in the second chapter when we talked about "Conspicuous consumption", diversification as a sign of social distinction. When a family perceives a higher incomes, it not only increases the amount of goods acquired but wants to diversify the variety as it is considered
a distinctive sign of economic wellbeing to be transmitted to others, a status symbol. For this reason, what enhances the growth of the curve is certainly the range of luxury goods in the database, such as cars, boats, campers, motorcycles, watches, jewelry etc. The figure below confirms this evidence, showing the dispersion and the regression line for the luxury goods in our database.
Figure 13. Correlation between total expenditure and dispersion on luxury goods expenditure.
We can observe a fairly steep rising regression line. This because, when the households improves their economic status, they start accessing a variety of goods and services that were previously inaccessible. Italian consumers are highly influenced by this point of view, because they have very mass media pseudo-cultural models, we really consider the variety of goods consumed as a status symbol and we have a desire to show off these products. This is sure widespread around the whole world, but in some countries more
than in others; recent data have shown that Italy is the country in Europe with the highest consumption of cars for inhabitant, over 60 cars per 100 people, as shown in the table below.
Table 4, Motorization rate (number of cars per 100 inhabitants) in the major European countries in 2016.
Source: Autopromotec Observatory elaboration on Eurostat data (2016)
However, this is not just about cars but also the various technology products such as tablets, notebooks, and smartphones. which can, from a certain point of view, be considered as genuine goods by Giffen, which are goods that with the increasing of the demand the price rises; because they are purchased not always for the performance but for the social image of the product. For example, to spend about 800 euro for a cell phone with, more or less, the same performance as a 200 euro mobile phone, but with a larger social image, the average Italian is more likely to buy the cell phone by 800 euro. This tendency to share an image, even distorted, of a conquered high social status, causes the variety to increase considerably as the income increases.
4.3 – Total commodities
The last part of the empirical results is dedicated to the totality of the commodity. The following graph shows the nonparametric correlation between the income and the index of dispersion of the expenditure on the total commodities.
Figure 14. Correlation between total expenditure and dispersion on Total commodities
In this result the dispersion grows a little bit less than the one on non-food commodities, because it is affected by the growth on the basic necessity goods.
We can observe, even if imperceptibly, a little decreasing in the last part of the regression line, this can be due to the saturation of spending diversity mentioned by Andreas Chai in his last discussion paper, for which, if we look at disaggregated data, at a certain level of income the diversity of spending starts to decrease.
assumption mentioned for the food commodities, to a “fidelization” phenomenon. As the income increases, new products have already been explored and consumers now make selections. From a multiplicity of new or partially new products, in the intermediate income phase, when the purpose of consumption is more explorative, once they have diversified variety, consumers make a choice and choose the products they consider the best. Thus, at a certain point, the effect of attaching to a particular product rather than to another prevails; this may explain why the curve is declining only from quite high income levels. In the middle stage, the consumer is taking notice of those new products on the market that he could not access for economical reasons, but then he starts to select the products he considers the best.
4.4 – Households members
Ultimately, we have analyzed how the dispersion changes if the number of household components is taken into account. In this part of the chapter we made two different regressions for each of the 3 macroclasses of goods (Food, Non-Food, Total), analyzing how the dispersion varies for families composed by 1, 2 and 3 members and the most numerous, composed by 4,5 and 6 members. The chart below shows the sum of total household expenses based on the number of members.
Figure 15. Sum of total expenditures by number of households members
We can see that the families composed by 1, 2, 3 and 4 members are those with the largest total expenditures, instead, those composed by 5 and 6 members are the ones with the lowest total expenditures,
which we have aggregated to the 4 members families in the following analysis. However, it should be remarked that the less numerous families (1,2,3) make up the majority of the sample (almost 9,000 families), while the smaller families make up a small part (about 2,000); this can make less meaningful the analysis on the more numerous households.
a) Food commodities
The results related to food commodities show some differences between the two different types of households, as we can see from the following figures.
Figure 16. Correlation between total expenditure and dispersion on Food commodities for households formed by 1, 2 and 3 members
Figure 17. Correlation between total expenditure and dispersion on Food commodities for households formed by 4, 5 and 6 members
As shown, in the smaller families we have a growing curve in the initial part, which then tends to stabilize; while in the most numerous families, the curve is almost flat, with a slight increase in the initial part and a decrease in the final part. Leaving aside the fact that in the higher part of income there are few data, which makes the decrease not significant, it is possible to explain this decline, in addition to the reasons we have already listed, with the fact that the larger families have to cope with higher expenses for non-food items, such as those for children, and therefore tend to disperse less on food. Another fact may be the purchasing of certain food productions in "family size" at lower costs; productions that for individuals, for example, do not exist, and therefore they are found to disperse more the food expenditure.
b) Non-Food commodities
As far as spending on Non-Food commodities is concerned, there is almost no difference between the different groups of households, as it is shown in the graphs below.
Figure 18. Correlation between total expenditure and dispersion on Non-Food commodities for households formed by 1, 2 and 3 members
Figure 19. Correlation between total expenditure and dispersion on Non-Food commodities for households formed by 4, 5 and 6 members
We observe an increasing dispersion with increasing income both for the less numerous families and for the larger ones. As for the more numerous ones, this can be guided by the fact of having more children, as we have previously hypothesized, which leads to a diversification of expenditures.
c) Total commodities
Finally, in regarding to the totality of commodities the two graphs below indicate the dispersion of income on the various components of expenditure divided by the two classes of families.
Figure 20. Correlation between total expenditure and dispersion on Total commodities for households formed by 1, 2 and 3 members
Figure 21. Correlation between total expenditure and dispersion on Total commodities for households formed by 4, 5 and 6 members
The graphs show an increasing as regards the less numerous families that tends to stabilize but not to decrease, while the larger ones show a slight decreasing in the final part, probably because it is affected by the decline in the dispersion on food commodities.
5.
Conclusion
By analyzing the patterns of consumption on the food and non-food expenditures of the Italian sample, we have noticed some regularities that have partially confirmed previous economic theories on consumer diversity. As far as food consumption is concerned, we have observed an initial tendency to disperse, as far as the medium-low income levels are concerned, which then, tends to stabilize, generating a fairly flat regression curve. In addition to the economic factor that brings the budget shares for food commodities to be increasingly inferior when the income increases, explanations may include the increased consumption of food outside the home by increasing incomes, the introduction of diets and healthier lifestyle that bring to focus on particular product categories. Finally we introduce the rational motivation for the phenomenon, which sees the most affluent consumers, focus solely on particular favorites foods which best satisfy their nutritional needs. For what that concerns non-food consumption, which entails a steeper increasing of diversity when the income rises, we have found as explanation, in addition to the number of family members, the fact to find ourselves in a new era of consumption, strongly influenced by advertising and mass media, as well as having higher standards of living than a few decades ago. There is also an explanation of “conspicuous consumption”, being Italy a country that tends to show, through the purchase of luxury goods, its social status in the eyes of other people.
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