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Is utility additive? The case of alcohol

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  • Kenneth Clements
  • Wana Yang
  • Simon Zheng

Abstract

The hypothesis of additive utility (or preference independence) is often applied to the demand for broad aggregates. Recent testing provides some evidence favourable to the hypothesis, thus overturning the older results based on the standard asymptotic tests which are seriously biased against the null in small samples. Using data for seven countries and a variety of tests, this paper shows that preference independence also cannot be rejected for more narrowly defined commodities - beer, wine and spirits. The implications of the results for efficient taxation of alcoholic beverages are also explored.

Suggested Citation

  • Kenneth Clements & Wana Yang & Simon Zheng, 1997. "Is utility additive? The case of alcohol," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1163-1167.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1163-1167
    DOI: 10.1080/00036849700000007
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