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Modelling zeroes in microdata

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  • Jane Fry
  • Tim Fry
  • Keith McLaren
  • Tanya Smith

Abstract

Although the literature contains a number of suggestions for dealing with problems caused by a preponderance of zero expenditure observations that frequently occur in micro level budget studies, in general, these suggestions seem to be either empirically intractable or theoretically unappealing. In this paper it is argued that a natural theoretical specification can be motivated by duality theory and that the statistical technique of compositional data analysis provides a corresponding complementary stochastic specification. The resulting model is a consistent theoretical and stochastic specification for handling the possibility of a zero demand over a range of expenditures and/or prices. The model is then applied to the 1988/89 Australian Household Expenditure Survey.

Suggested Citation

  • Jane Fry & Tim Fry & Keith McLaren & Tanya Smith, 2001. "Modelling zeroes in microdata," Applied Economics, Taylor & Francis Journals, vol. 33(3), pages 383-392.
    • Handle: RePEc:taf:applec:v:33:y:2001:i:3:p:383-392
    DOI: 10.1080/00036840122916
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    References listed on IDEAS

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    1. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    2. Lee, Lung-Fei & Pitt, Mark M, 1986. "Microeconometric Demand Systems with Binding Nonnegativity Constraints: The Dual Approach," Econometrica, Econometric Society, vol. 54(5), pages 1237-1242, September.
    3. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
    4. Jane Fry & Tim Fry & Keith McLaren, 2000. "Compositional data analysis and zeros in micro data," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 953-959.
    5. McLaren, Keith R & Fry, Jane M & Fry, Tim R L, 1995. "A Simple Nested Test of the Almost Ideal Demand System," Empirical Economics, Springer, vol. 20(1), pages 149-161.
    6. Fry, Jane M. & Fry, Tim R. L. & McLaren, Keith R., 1996. "The stochastic specification of demand share equations: Restricting budget shares to the unit simplex," Journal of Econometrics, Elsevier, vol. 73(2), pages 377-385, August.
    7. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-364, May.
    8. Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-371, July.
    9. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-668, August.
    10. Blackorby, Charles & Diewert, W E, 1979. "Expenditure Functions, Local Duality, and Second Order Approximations," Econometrica, Econometric Society, vol. 47(3), pages 579-601, May.
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    Cited by:

    1. Terence Mills, 2010. "Forecasting compositional time series," Quality & Quantity: International Journal of Methodology, Springer, vol. 44(4), pages 673-690, June.
    2. Hikaru Hasegawa & Kazuhiro Ueda & Kunie Mori, 2008. "Estimation of Engel Curves from Survey Data with Zero Expenditures," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(4), pages 535-558, August.
    3. Bente Halvorsen & Runa Nesbakken, 2004. "Accounting for differences in choice opportunities in analyses of energy expenditure," Discussion Papers 400, Statistics Norway, Research Department.

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