Consumer Demand Analysis When Zero Consumption Occurs: The Case of Cigarettes

摘要

Analysts use household survey information when attempting to model the demand for certain commodities. However, many individuals do not purchase or use specific agricultural commodities during a survey period. This presents a problem for analysts because it is unclear what the zero purchase implies. It could mean that the individual never uses the product or that the survey period was too short. Or perhaps the individual would use the product if the price were lower. By focusing on a specific commodity with well-known characteristics and patterns of use, cigarettes, we are able to examine methods of treating zero observations. Our results generally support the conclusions that analysts should thoroughly understand the characteristics of the commodity to be studied, should apply appropriate econometric techniques, and should make full and creative use of all survey information. Survey designers should structure survey questions to permit separation of the sample into users, never-users, and potential users.