Collective Decision-Making and Heterogeneity in Tastes

This article begins by proposing a random taste parameterization of a quadratic extension of the PIGLOG demand system at the household level, which is consistent with exact aggregation. This variation in tastes is a random function of household characteristics. The econometric implication is that a well-defined heteroscedastic error enters the demand system. This heteroscedasticity can be handled by a GMM technique. Using a large Canadian cross-sectional household data set and the Quadratic Almost Ideal Demand System, homoscedasticity is rejected; however, when heteroscedasticity is allowed for, there are no longer inconsistencies between the theoretical and empirical evidence, particularly with respect to the collective decision-making properties of homogeneity, SR1 symmetry, and distribution factor proportionality and linearity.