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Consumption and Space

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, International 2
Hosted By: American Economic Association
  • Chair: Liran Einav, Stanford University

A New Engel on the Gains from Trade

David Atkin
,
Massachusetts Institute of Technology
Benjamin Faber
,
University of California-Berkeley
Thibault Fally
,
University of California Berkeley
Marco Gonzalez-Navarro
,
University of California-Berkeley and AgEcon

Abstract

Measuring the gains from trade and their distribution is challenging. Recent empirical contributions have addressed this challenge by drawing on rich and newly available sources of microdata to measure changes in household nominal incomes and price indices. While such data have become available for some components of household welfare, and for some periods and locations, they i) are not available in most empirical settings, ii) are infeasible to collect in any setting for every component entering the household utility function, and iii) still require strong functional form assumptions (e.g. to evaluate the gains from variety). In this paper, we propose and implement an alternative approach that uses rich, but widely available, expenditure survey microdata to estimate a theory-consistent and exact metric of changes in income-group specific price indices and welfare. Our approach builds on existing work that uses linear Engel curves and changes in expenditure on income-elastic goods to infer unobserved real incomes. A shortcoming of this approach is that the preference structure typically imposed to estimate even simple linear Engel curves implies income-varying price indices that once again require knowledge of all price changes. We improve this methodology in two key ways: i) we show that for a broad class of quasi-separable preferences and focusing on what we term “relative Engel curves”, we can recover changes in price indices and welfare from horizontal shifts in Engel curves; and ii) our approach is flexible enough to allow for the highly non-linear Engel curves we document in the data, and for non-parametric estimation at each point of the income distribution. We first implement this approach using Indian microdata, and revisit the impacts of India's trade reforms across regions. We then draw on harmonized cross-country expenditure surveys compiled by the World Bank to estimate the gains from trade at the national level.

The Geography of Consumption

Sumit Agarwal
,
Georgetown University
Brad Jensen
,
Georgetown University
Ferdinando Monte
,
Georgetown University

Abstract

We use detailed information from U.S. consumers' credit card purchases to provide the first large-scale description of the geography of consumption. We find that consumers' mobility is quite limited and document significant heterogeneity in the importance of gravity across sectors. Gravity is stronger in more frequently purchased sectors. Consumers actively manage the spatial dimension of their consumption choices: using daily rain precipitation from thousands of weather stations in U.S., we show that shocks to travel costs change the spatial distribution of expenditure, and they do so differentially across sectors. These choices matter for local equilibrium outcomes: using underlying geological variation across U.S. counties, we show that sectors with high storage costs respond with larger employment and denser stores to exogenous differences in population. A simple model where consumers choose how far and how frequently to travel for their purchases rationalizes these findings. Higher storage costs raise the consumers' marginal cost of travel and make demand more spatially concentrated. In response to an increase in population, firms increase output but try to limit the use of distant land, therefore substituting more with labor in high storage costs sectors. Our results suggest that incorporating the demand-side is necessary to analyze the distributional consequences of local and aggregate shocks across regions. These results also suggest the demand-side is critical to understanding the location of firms and employment in the large and understudied service sector.

Assessing the Gains from E-Commerce

Liran Einav
,
Stanford University
Peter Klenow
,
Stanford University
Benjamin Klopack
,
Stanford University
Jon Levin
,
Stanford University
Larry Levin
,
VISA

Abstract

E-commerce represents a rapidly growing share of U.S. retail spending. We use transactions-level data on credit and debit cards from Visa, Inc. between 2007 and 2014 to quantify the resulting consumer surplus. We estimate that the gains from e-commerce reached the equivalent of a 1.3% permanent boost to consumption by 2014, or about $1,250 per household. The gains arose mostly from accessing a wider variety of merchants online, but also from saving the travel costs of buying items in brick-and-mortar stores. The richest counties gained roughly twice as much as the poorest counties (top vs. bottom quartiles), and densely populated counties gained more than sparsely populated counties.
Discussant(s)
Jessie Handbury
,
University of Pennsylvania
Victor Couture
,
University of California-Berkeley
Cecilia Fieler
,
University of Pennsylvania
JEL Classifications
  • R2 - Household Analysis
  • F0 - General