BAYESIAN ESTIMATION OF SOME AUSTRALIAN ELES-BASED EQUIVALENCE SCALES

William Griffiths and Rebecca Valenzuela

No. 87- May 1996

ISSN ISBN

0 157 0188 1 86389 337 7

Bayesian Estimation of Some Australian ELES-Based Equivalence Scales

William Griffiths and Rebecca Valenzuela Econometrics Department, UNE Armidale NSW 2351 Tel: (067) 732715 Fax: (067) 733607 wgriffit@ metz~ une.edu.au

Data from the 1988-89 Household Expenditure Survey of Australia are used to obtain estimates of commodity-specific equivalence scales for 11 commodity groups and 8 types of household compositions. General equivalence scales are also estimated for the different household types. The scales are derived from an extended linear expenditure system that is characterised by intercepts that differ over commodities and household types and slope coefficients that differ only over commodities. The scales are non-linear functions of these parameters. Gibbs sampling is used to generate observations from the scales posterior densities from which Bayesian estimates are obtained.

JEL Classification: Cll, C31, D12

Introduction

Equivalence scales are typically defined as ratios that show the income or expenditure requirement of one unit relative to a base such that both units are on the same level of welfare. Household equivalence scales thus act as deflators that offer more sophistication than per-capita head counting when household budgets are adjusted to permit welfare comparisons across households with different demographic profiles. It has become standard practice to employ equivalence scales in studies that measure and compare living standards of-say, households, to account for economies of scales and/or differences in the needs of each individual member. This is certainly the case in many recent country studies on income inequality and poverty. See Anand (1983) for Malaysia, Tsakloglou (1993) for Greece, Slesnick (1994) for the U.S. and Meagher and Dixon (1986), Kakwani (1986) and Podder (1993) for Australia. Equivalence scales are also employed by many governments to ascertain the appropriateness of public policies such as the progressive taxation system or the structure of social welfare benefit schemes. The use of equivalence scales in income maintenance programs, for instance, generally results in large benefits accruing to families with more and older children compared to families with fewer and younger children. In this paper, we focus on the estimation of household equivalence scales derived from the extended linear expenditure system (ELES) of Lluch (1973) that was later modified by Kakwani (1977) for equivalence scale estimation. In particular, we employ the Bayesian approach to estimation of the scales and contrast our results from those derived using a more traditional maximum likelihood (ML) estimation procedure. The advantage of the Bayesian approach lies in the fact that one is able to derive finite sample posterior distributions of commodity-specific and genera] scales whereas ML estimates have to rely on the asymptotic properties of the non-linear functions of the original parameters. In the case of general scales, standard errors that are typically difficult to derive from ML procedures are easily estimated using the Bayesian approach. Other recent studies that have estimated equivalence scales for Australia are those of Binh and Whiteford (1990) and Bradbury (1994). Binh and Whiteford (1990) base

their estimates on the 1984 Australian Household Expenditure Survey (HES) and use an ELES and the same commodity groupings as we employ. Our work can be viewed as an update of their estimates using the 1988-89 HES, with more general stochastic assumptions for the model and an alternative estimation methodology. Bradbury (1994) develop a generalised translation model, a generalisation of Pollack and Wales (1981) that distinguishes between child and adult goods. Using the 1988-89 HES, he compares estimates obtained using this model with those from two other models, including the ELES. The plan of this paper is as follows. Section 2 presents the model and the derivation of the equivalence scales based on its parameters. The Bayesian procedure is outlined in Section 3. The derivation of the conditional posterior probability density functions (pdfs) that are required for Gibbs sampling are detailed in Section 4. A brief discussion of the data and the results are presented in Section 5 and conclusions are drawn in Section 6.

The Model

Utility-based equivalence scale models were first promoted by Barten (1964) who introduced commodity-specific equivalence scales to deflate commodity quantities for different household types and at the same time made room for possible substitution between goods, a feature not found in the earlier models. The utility function for this model is generally represented by

where q~/s~ refers to the household per capita equivalent consumption of commodity i and the s~s are the commodity-specific scales which are usually functions of the households demographic composition. Later contributions ar~ reviewed and expanded by Pollack and Wales (1981) and Sradbury (1994). In this context, we use the extended linear expenditure system (ELES) of Lluch (1973) which we now outline beginning with the Klein-Rubin utility function

(1) where qih = is the quantity of the it~ commodity consumed by the h-type household; sih = is the it~ commodity-specific equivalence scale for the h-type household; bi = is the marginal budget share for the i~h commodity satisfying the constraints 0 < b~ <, ~1 bi-= 1; = is a parameter which, if interpreted as the subsistence quantity of the ie~ commodity, satisfies the constraint e4 > O.

Household types (h = 1,2, ...H) are defined in terms of the number of adults and children in the household. Maximising (1) subject to the budget constraint

,2----1

where p; = is the price of the it~ commodity and v~, = is the total expenditure for the h-type household leads to the expenditure system

v~, = a~, + b~(v~, - a~,)

where vi~ a~

(3)

= piqi~, is expenditure on the it~ commodity by the h-type household; = p~c~si~ is subsistence expenditure for the ith commodity and h-type household, and = ~ a~ is total subsistence expenditure for a h-type household.

A feature of this system is hnearity, which may not be an appropriate specification for many cases. Also, the utility function from which it is derived is directly additive; as shown in Denton (1974, 1975), this is a restrictive assumption, particularly in studies that use a detailed disaggregation of commodities. Despite these facts, we have chosen to work with the ELES, mainly because it has been the major vehicle for deriving equivalence scales from cross-section data (which is our data source) particularly in Austraha (Kakwani (1977), Binh and Whiteford (1990) and Bradbury (1994)). In the process, we mitigate the assumption of additive utihty by restricting estimation to 11 broad commodity groups. In any case, the relative simphcity of the ELES is convenient for our objective of introducing a new methodology, and this study is a useful addition to the available empirical evidence on equivalence scales. Equivalence scales are defined relative to a reference household whose scales s~ are set equal to unity. Thus, in terms of the parameters in equation (3), the commodity specific scales are defined by

= --

air

(4)

Also of interest is the general household equivalence scale which, for a household of type h, is defined as the ratio of the income of that household to that of the income of the reference household, such that the indirect utility functions of the two households are the same. It can be shown that these general scales are given by

= ;Tr - + i=1

1-

(5)

where z, is the income of the reference household (Binh and Whiteford, 1990). Our main focus is on estimating the sih and sh, although there is a secondary interest in the aiu and bi. One of the difficulties with estimating equation (3) is that not all the ai~ parameters are identified. Following Lluch (1973), Kakwani (1977) overcame this problem in the context of equivalence scale estimation by using an ~xtended linear expenditure system which includes a micro-consumption function given by vu = (1 - b)a~, + bx~

where z~ b is net income for an h-type household and is a common marginal propensity to consume.

Substituting (6) into (3) leads to the system of equations

where

Note that (7) defines a system of nH equations, one for each combination of commodity and household type. Each equation has a different intercept, but is characterised by a slope coefficient which does not vary over household type. Our problem now is to estimate 0i~ and U~. These estimates lead us to estimates of the a~ and bi which in turn lead us to estimate the si~ and s~. The earher parameters can be found from (0~, ~7~) through the following relationships

b=
i=l

(lO)
~=~

ah

1-b

(11)

b~ = r/_~ b ai~, = O~ + b~ba~,

(12)

(13)

Suppose we have Mu observations on expenditures via (i = 1,2, ...n) and income z~ for the h-type household. Introducing conventional seemingly unrelated regression (SUR) statistical assumptions (Zellner, 1962), the model for the h-type household can be written as 6

~1~ ?)2/*

Zh ~h

or

V~, = Z~@h + X~I + Eh

where

(14)

is now written as an (Mh 1) vector of observations on expenditure for the it~ commodity and the h-type household;
Zh

is an (M~ 1) vector of ones; becomes an (M~ 1) vector of observations on income for households of type h;

~ih

is an (M~ 1) vector of errors. is of dimension (nM~ 1); = I,~ zu is an (nM~ n) matrix of dummy variables; = I,~ zh is an (nMu n) matrix of incomes; are (n 1) vectors of unknown parameters;

V~ Z~ X~

E~

is an (nM~ 1) vector of errors which we assume are distributed as E~ ,-~ N[0, ~ IM~]

(15)

where ~ is a (n n) error covariance matrix.

Bayesian Estimation

Application of the Bayesian approach to estimation begins with specification of a joint prior distribution for the unknown parameters. In what follows, we specify what are

traditional non-informative priors for the SUR model. Non-informative priors ignore the existence of what could be considerable prior information, but they do have the advantage of objective data-based reporting of posterior information. Our case of non-informative priors does not imply a lack of substantial prior information. Indeed, obvious prior inequalities on equivalence scales from different household compositions, as well as inequalities imp~ed by the subsistence parameters, can be set up along the lines in Griffiths and Chotikapanich (1996). The following generic notation will be useful:

# = {#,,I for all h} e = {e~,l forallh } V --- {V~I forallh }

The traditional non-informative or diffuse prior (Judge, et.al. 1985, p.478) for/2~ is

g(~) ~1 ~ I-
covariance matrices is
H
h=l

(16)

Treating all the ~2h is as a prior independent, the combined prior pdf for all error

For the location parameters ~ and ~/which can take on any value on the real line, it is customary to assign priors that are proportional to a constant. Therefore, we

h ave
g(r/) c< constant g(e~) c< constant
A priori independence implies

(18) (19)

~(e) = H ~(e,,) o~
h:l

constant

(20)

Finally, assuming prior independence of ~9, r/and ~, the joint prior pdf will simply be the product of the priors specified in (17) (18) and (20). Thus, we have

(21)

as the joint prior density function. For specification of the likelihood function, we first note that the pdf of the expenditure vector for a~l households of type/z is given by

f(v~ I e~, rt, n~)

exp (23) Then, the complete likelihood function is given by

f(~9, r/, OIV) =

lIf(Vh
h,=l

I e~,o, ~,)

h=l

I~ la~,l-~

exp

A convenient and efficient iterative procedure for obtaining maximum likelihood estimates that maximize this function has been suggested-by Griffiths and V~denzuela (1995). Here we concentrate on Bayesian estimation. Combining (22) and (23) via Bayes Theorem yie~lds the joint posterior pdf

H
h---1

k ~h=l

(25)

This pdf is the source of all our post-sample information on the parameters and ~. What is of particular interest is the information on the equivalence scales s~a and sa that we can derive from the information on ~ and r/. To tackle this problem analytically, we would need to derive the marginal posterior pdfs f(s~ [V), (i = 1,2,...,n; h = 1,2,...,H) and f(sh IV), (h = 1,2,...,H), through variable transformation and by integrating unwanted parameters out of the joint posterior pdf. This task is a daunting one. Properties of the inverted Wishart distribution can be used to integrate the ~2h from (25), but the resulting marginal posterior pdf for (~,r/) is not of a recognizable form, and to then employ a transformation to (S~h, would not be a rewarding experience. A numerical approach is much more promising. If we can draw a sample of values of the parameters from the posterior pdf in (25), then corresponding values of the s~u and su can be computed. This sample of values is equivalent to sampling from the marginal posterior pclfs f(si~[V) and f(s~]Y) for each commodity parameter and household type. Thus, the sampled values can be used to estimate posterior means and standard deviations for the various equivalence scales, as well as provide information for approxhnate plots of the posterior pdfs. Drawing values from the joint posterior pdf in (25) is achieved conveniently using Gibbs sampling. Once conditional posterior pdfs for each of the parameters have been derived, one can sample iteratively from these pd.fs. After a suitable burn-in period, the draws represent draws from the joint posterior pdf. The application of Gibbs sampling to SUR systems of different kinds has been considered by Percy (1992), Chib and Greenberg (1995) and Griffiths, Thomson and Coelli (1996). Our model does not fit neatly into any of these earlier studies, and so, we proceed by deriving the required conditional posterior pdfs.

10

Conditional Posterior Pdfs

Note that the joint posterior pdf can be conveniently factored as

M~ +n+ 1

(26) This factorization is a convenient one for obtaining the conditional posterior pdfs for ~h and ~h. Let

for all # h}
for alllc~h} From (26) we have (Judge, et.al. 1985, p.479) f(f2h [ ~,~/, ~2~, V) o([ $-2h 2 exp ~ tr (Ahn-~1) (27)

where A~ is a matrix with (i,j)*~ element equal to a~i = (vi~ - z~Oiu - z~]i)(vi~ z~,Oj~ - x~]~). The conditional density in (27) has an inverted Wishart distribution from which random generation of observations is straightforward (Anderson, 1984, p.238). Also, from (26) we can write the conditional posterior pdf for ~9~ as

f(e~leL n, n,v)

--Xhy)}

(28)
where

= (I,~ M[lz~h)(V~,-

(29)

11

Equation (28) suggests that the conditional posterior density for Oh is a multiv~iate norma~ density function with mean ~ and cowriance matrix (Mh)-1 ~gh. That is,

To derive the conditional posterior for W, we again consider the joint posterior density in (25). Conditioning on all parameters except W imphes that

k --h=l

(31)

If we let V~ = Vh - Zh~h, the summation term in (31) can be written as

(32)
h-1

To enable further simplification, let

(33) (34)
and define
-1 H
h=l

(35)

It then follows that

12

exp{-(.(,(37)

which suggests that f(~/[ e, ~2,V) is a multivariate normal distribution with mean ~/and covariance matrix W. That is, (38)

f(o [ O,~, V) ,,~ N //, (

Given the conditional posterior pdfs in (27), (30) and (38), the Gibbs sampler can be used to generate observations on 21, ~, ..., O~r, ~1, ~2, ..., ~/, r/using the following steps: 1. Given some intial values for 0~ and ~, compute, for each h,

2. Draw values 2~, ~2~, ...., ~2H from respective inverted Wishart distributions with parameter matrices A1, As, ..., AH and degrees of freedom M~, M~, ..., M~. 3. Compute ~1, ~, ...., ~H as defined in (29) and, given the ~/~ drawn in step 2, draw values e~, h = 1,2, ..., H from N(~, M~l~a) distributions. 4. Using the values for ~2h and Or drawn in steps 2 and 3, respectively, compute W and//as defined in (33) and (35). 5. Draw a value for ~/from a N(iL W-1) distribution. 6. Return to step 1 using the 8~ and ~ drawn in steps 3 and 5, respectively, and continue to proceed iteratively through all the steps, until a large sample has been generated.

13

Application, Data and Results

The Bayesian procedure described in the previous section is applied here using data from the 1988-89 Australian Household Expenditure Survey. We have the following 11 commodity groupings: 1. Housing 2. Fuel and Power 3. Food

4. Alcohol and Tobacco

5. Clothing and Footwear 6. Household Furnishings and Equipment 7. Medical and Health Care 8. Transport 9. Recreation and Entertainment 10. Personal Care 11. Others The sample used is restricted to households of related persons with one or two adults and at most three children, resulting in H = 8 different household types. Adults are all those aged 17 or older and children refer to all those aged 16 or below. The data comprise a total of 5532 sample households which make up 77 percent of the total sample households in the HES. The household .types and their distribution in the sample are presented in Table 1. For Bayesian estimation, we generated 18000 sets of observations for each parameter element in 2h, r/ and @h for the 8 household types. Observations from the first 3000 runs in the iterations provided the burn-in period of the Gibbs sampler

14

and hence were discarded, leaving 15000 observations in the final estimation sample. These observations were used to estimate the posterior means and standard deviations of all the commodity-specific and general scale~ as well as to provide points for drawing marginal posterior pdfs for some selected scales. All calculations were carried out using the econometric package SHAZAM. Checks of convergence of the generated Gibbs sequence were conducted through diagrams. The estimated scale values for the first and last 1000 observations of the generated series were plotted against each other. In Fig.1 are the plots for the generated values of the clothing scales. The last 1000 observations do not appear to differ much from the first 1000 sample points. This trend is typical of the diagrams for the other scales (not shown here) including that of the general scales and points to a fast convergence rate for all the series generated. Table 2 shows the posterior means and standard deviations of the scales from Bayesian estimation. As expected, for most commodities there is ~n increase in the per household equivalent expenditure as household size increases; these increases generally occur at a decreasing rate indicating economies of scale for additional children. There are some exceptions to these observations. The estimated scales for Alcohol and Tobacco decline as the number of children in the household increases. Also, the scales for Medical and Health Care and Others commodity groups exhibit no defined trend for 1-adult households. A more thorough investigation of expenditure patterns of households may be required for us to provide definitive explanations for such deviations but it may be possible that the presence of children in the household tends to influence expenses away from adult goods under which alcohol, tobacco and some other miscellaneous goods are classified. Tables 3 contain ML estimates of the commodity specific scales obtained through the iterative procedure detailed in Griitiths and Valenzuela (1995). In comparing Tables 2 a~ud 3, most obvious is the striking similarity of the point estimates from both methods; in most cases, they differ only from the third decimal point. The two sets of estimates ~ppear to be highly reliable in that they possess small values of standard deviations, although the Bayesian standard errors are, in general, consistently higher than the ML standard errors. This result is expected because the ML estimates cam be viewed as means and standard

15

deviations from a conditional (rather than unconc~tional) posterior pdf, whereas the Bayesian estimates are from unconditional pdfs. Across cornmod~ties, the estimated scales for Clothing and Footwear, R.ecreation and Entertainment and Others invariably have the largest variances while those for Food and Alcohol and Tobacco have the smallest variances. Across households, the scales for the type (1,0) consistently have the smallest variances while those for the type/1,3) always exhibit the largest variances. This result can be attributed to the relative sizes of the samples; there are more than a thousand households of type (1,0) while there are only 42 households of type (1,3). (See Table 1). Between the two sets of estimates, it is then not surprising to note that the largest differences in the scale values were observed for household type (1,3) and the smallest differences were those of household type/1,0). The estimates for the general scales are presented in Table 4. It may be recalled that general scales depend on a chosen level of income of the reference household ~. In Table 4, the ML estimates are based on ~:~= 450 which is medium income level. On the other hand, the Bayesian estimates are based on a randomly selected x~ level satisfying x~ < ah. As can be seen, the Bayesian and ML estimates are again very close to each other. Bayesian scales for the 2-adult households are smaller in magnitude while those for the 1-adult households are slightly larger, compared to the ML estimates. While it is theoretically possible to derive standard errors for estimates from both procedures, doing so for the ML estimates is cumbersome because of the large of the number of parameters involved and their various interrelationships. With the Bayesian estimates, posterior standard deviations are straightforwardly estimated. The posterior pdfs of some of the scales are presented in Figure 2-5. Normal conditional posterior pdfs implied by the ML estimates are plotted alongside the Bayesian scales. It is immediately evident that the ML-based posteriors approximate those of the Bayesian posterior pdfs. It is also immediately obvious that the foodscales posterior pdf for the (1,0) household type has a relatively small variance while that of the household type (1,3) has a relatively large variance. In general, the pdfs shift to the right with the addition of children in the household. The magnitudes of the shifts however differ across the commodities. For example, with food, the effects of increasing the number of adults and children in the household has a clear distinct

effect; overlapping of the posterior pdfs is minimal. With clothing, the location of the pdfs is as expected but considerable overlapping of the pdfs means that we are more uncertain about the relative magnitudes of the scales. Across commodities (for which the posterior pdfs have been plotted), the posterior pdfs of the food scales are observed to have less variability compared to those of the clothing or housing scales. The posteriors for food also indicate lesser gains in economies of scale compared to housing or clothing; this observation conforms with our expectations. The posterior pdfs for the general scales in Fig.5 yield patterns that are consistent with the observations for the posterior pdfs of the three commodity groups analysed earlier. That is, the pdfs shifts to the right at a diminishing rate with the addition of children in the household. The least variance was observed for household type (1,0) while the largest variance was observed for household type (1,3). It is also noted that the standard errors for the general scales are larger than those for the commodity-specific scales.

Conclusion

In this paper, we have demonstrated how Bayesian techniques can be used to estimate equivalence scales. It is relatively straightforward to use numerical methods to obtain posterior pdfs and summary measures such as the posterior means and standard deviations. Unlike ML estimation, posterior pdfs let us make finite sample inferences about non-linear functions of the original parameters like the equivalence scales. Also, Bayesian estimates take account of the" uncertainty associated with the error covariance matrix estimation in that they are not conditional on point estimates of the error covaxiances, as ML estimates are. The resulting Bayesian estimates of means and standard deviations of the equivalence scales are plausible and lend easily to economic interpretation. It is also convenient to be able to present information diagramatically through plots of posterior pdfs. Through such diagrams, we were able to show clearly the

17

relationships between the different scales in terms of both the magnitudes and reliability of the derived information; such relationships may not be so obvious when analysing point estimates Mone. In this study, we have also observed that because our sample size is large, there is not a great deal of difference between the Bayesian and ML estimates of the commodity-specific scales. However, we were unable to obtain indications of reliability of the general scales from ML estimation because of the large number of parameters involved. Drawing such information proved straightforward using the Bayesian approach. A useful future extension of this study would be the imposition of prior information in the form of obvious inequalities between scales and on subsistence parameters.

18

Table 1. Distribution of Sample Households Household Type (no. of adults, no. of children) Number of Households 2074 532. 889 388 1372 132 (1,2) (1,3) 103 42 Percent of Sample 38% 1 16"/= 7=1= 25% 2o/= 20/= 8o/=

(2,0)

(2,1) (2,2)
(2,3) (1,0)

19

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0~
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m~
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~m
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N~
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~N ~

~o~

~o~

~o

~o~

~m ~
~o~

o
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o~
~O
~

m~
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~

~
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~

m~
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m~
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O *O

o o
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O OO

o o
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o OO

8 O
OO
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0 0 0 0 0 0
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Table 4. Bayesian and ML Estimates of General Scales Household Type (no. of adults, no. of children) (2,0) (2,1) (2,2) (2,3) (1,0) (1,1) (1,2) (1,3) Bayesian Estimates 1.00000 1.23~0 (0.05705)
1.231 64

ML Estimates

(0.05458)
1.47000 (0.07253) 0.58189 (0.02198) 0.72262 (0.05323)
1.46043

1.33410

1.32578

0.58143

0.72295 0.79635

(o.o8633)
0.89943 (0.15416)
0.91396

0.78616

22

Fig. 1. Plots of first and last 1000 sample points from the generated series for clothi~ scales.

Clothing Saales for" Household Type

Clothing Scales for Household Type (2,1)

Clothing Soales for Household Type (2,2)

Clothing Scales for" Household Type (2,2)

Clothing Scales for Household Type (2,3)

Clothing Scales for Household Type (2,3)

J ::
I 1 l !

23

Fig. 1. (cont.) Plots of first and last 104)0 sample points from the generated series for clothing scal~
Clothing Soales for Household Type (1,0) Clothing S(=IIII for Household Type (1.0)

~J~

Clothing Soellee for Household Type (1.2)

for Household Type (1.2)

Clothing Soole~l for Household Type (1.3)

Clothing Stoles fo~ Household Type (1.3)

I.~ 1.711

Fig. 2. Posterior Distributions of Food Scales for each Household Type (no. of adults, no. of children)
(1,0)

ML posteriors Bayesian posteriors

(1,3)
1.75

Fig. 3. Posterior Distributions of Clothing Scale~ for each Household Type (no. of adults, no. of children)

ML posteriors Bayesian posteriors

0.75

1.00 1.25 1.50 1.75 2.00 2.25

2S

Fig. 4. Posterior Distributiom of Housing Scales for each Household Type (no. of adults, no. of children)
10 9 8 7 6 (1,1)

ML posteriors Bayesian posteriors

3 2

(2~)

0 0.25

Fig. 5. Posterior Distributions of General Scales for each

Household Type (no. of adults, no. of children)
20 (1,0) 15

ML posteriors Bayesian posteriors

(1,1)

(2~1) (2,2)

(1,3)

0 0.00

0.50

0.75 1.00 stoles

26

References:
Anand, S. (1983), Inequality and Poverty in Malaysia: Measurement and Decomposition, New York, Oxford University Press. Anderson, T.W. (1984), An Introduction to Multivariate Statistical Analysis (2nd ed), New York, John Wiley. Australian Burea~t of Statistics (1992), Information Paper 1988-89 Household Expenditure Survey of Australia (July 1992-Update), Canberra, Australia. Barten, A.P. (1964), Family Composition, Prices and Expenditure Patterns in P.E. Hart, G Mills and J.K. Whitaker (eds), Econometric Analysis for National Economic Planning (London: Butterworth). Birth, T.N. and P. Whiteford (1990), "Household Equivalence Scales: New Australian Estimates from the 1984 Household Expenditure Survey, Economic Record, vol. 66, 221-134. Bradbury, B. (1994), "Measuring the Cost of Children, Australian Ec.onomic Papers, June, 120-138. Chib, S. and E. Greenberg (1995), Hierarchal Analysis of SUR Models with Extensions to Correlated Serial Errors and Time-Varying Parameter Models, Journal of Econometrics, vol. 68,339-360. Griffiths, W. and R. Valenzuela (1995), "Maximum Likelihood Estimation of Household Equivalence Scales from an Extended Linear Expenditure System: Application to the 1988 Australian Household Expenditure Survey, Working Papers in Econometrics and Applied Statistics, No. 80, Econometrics Department, UNE Armidale. Griffiths, W. and D. Chotikapanich (1996), Bayesian Methodology for Imposing Inequality Constraints on a Linear Expenditure System with Demographic Factors, Working Papers in Econometrics and Applied Statistics, Econometrics Deparunent, UNE Armidale. Griffiths, W., G. Thomson and T. Coelli (1996), Predicting a Product from Seemingly Unrelated Regression Equations, Working Papers in Econometrics and Applied Statistics, Econometrics Department, UNE Armidale. Judge, G.G., W.E. Griffiths, R.C. Hill, H. Lutkephoi and T.C. Lee (1985), The Theory and Practice of Econometrics, (2nd ed), New York, John Wiley. Kakwani, N.C. (1977), On the Estimation of Consumer Unit Scales; Review of Economics and Statistics, vol. 59, 507-510. Kakwani, N.C. (1986), Analysing Redistribution Policies, Cambridge, Cambridge University Press. Lluch, C. (1973), "The Extended Linear Expenditure System , European Economic Review, vol.4, 21-32. Meagher, G.A. and Dixon, P.B. (1986), Analysing Income Disiribution in Australia, Economic Record, vol. 62, 427-41. Percy, D. (1992), "Prediction for Seemingly Unrelated Regressions, Journal of the Royal Statistical Society B, vol 54, no. 1,243-252. Podder, N. (1993), The Disaggregation of the Gini Coefficient by Factor Components and Its Application to Australia, The Review of lncome and Wealth, Series 39, no.l, 51-61. Pollack, R.A. and Wales, T.J. (1981), Demographic Variables in Demand Analysis, Econometrica, vol. 19, no.6, 1533-51. SHAZAM Users Reference Manual Version 7.0 (1993), McGraw Hill, Canada. Slesnick, D.T. (1994), Consumption, Needs and Inequality; International Economic Review, vol. 35, no.3, 677703. Tsaidoglou (1993), Aspects of Inequality in Greece, Journal of Development Economics, vol. 40, 5374. Zeliner, A (1962), An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests of Aggregation Bias, Journal of American Statistical Association, vo157, 348-368. 27

WORKING PAPERS ECONOMETRICS AND APPLIED STATISTICS

The Prior Likelihood and Best Linear Unbiased Prediction in Stochastic Coefficient Linear Models. Lung-Fei Lee and William E. Griffiths, No. 1 - March 1979.
Stabifity Conditions in the Use of Fixed Requirement Approach to Manpower Planning Models. Howard E. Doran and Rozany R. Deen, No. 2 - March 1979. A Note on A Bayesian Estimator in an Autocorrelated Error Model. William Griffiths and Dan Dao, No. 3 - April 1979.

On l~-Statistics for the General Linear Model with Nonscalar Covariance Matrix. G.E. Battese and W.E. Griffiths, No. 4 - April 1979. Construction of Cost-Of-Living Index Numbers - A Unified Approach. D.S. Prasada Rao, No. 5- April 1979.
Omission of the Weighted First Observation in an Autocorrelated Regression Model: A Discussion of Loss of Efficiency. Howard E. Doran, No. 6 - June 1979.

Estimation of HousehoM Expenditure Functions: An Application of a Class of Heteroscedastic Regression Models. George E. Battese and Bruce P. Bonyhady, No. 7 - September 1979.
The Demand for Sawn Timber: An Appfication of the Diewert Cost Function. Howard E. Doran and David F. Williams, No. 8 - September 1979.

A New System of Log-Change Index Numbers for Multilateral Comparisons. D.S. Prasada Rao, No. 9 - October 1980.
A Comparison of Purchasing Power Parity Between the Pound Sterfing and the Australian Dollar - 1979. W.F. Shepherd and D.S. Prasada Rao, No. 10 - October 1980.

Using Time-Series and Cross-Section Data to Estimate a Production Function with Positive and Negative Marginal Risks. W.E Griffiths and J.R. Anderson, No. 11 December 1980. A Lack-Of-Fit Test in the Presence of Heteroscedasticity. Howard E. Doran and Jan Kmenta, No. 12 - April 1981.
On the Relative Efficiency of Estimators Which Include the Initial Observations in the Estimation of Seemingly Unrelated Regressions with First Order Autoregressive Disturbances. H.E Doran and W.E. Griffiths, No. 13 - June 1981. An Analysis of the Linkages Between the Consumer Price Index and the Average Minimum Weekly Wage Rate. Pauline Beesley, No. 14 - July 1981.

28

An Error Components Model for Prediction of County Crop Areas Using Survey and Satellite Data. George E. Battese and Wayne A. Fuller, No. 15 - February 1982. Networking or Transhipment? Optimisation Alternatives for Plant Location Decisions. H.I. Toft and P.A. Cassidy, No. 16 - February 1985. Diagnostic Tests for the Partial Adjustment and Adaptive Expectations Models. H.E. Doran, No. 17 - February 1985. A Further Consideration of Causal Relationships Between Wages and Prices. J.W.B. Guise and P.A.A. Beesley, No. 18 - February 1985. A Monte Carlo Evaluation of the Power of Some Tests For Heteroscedasticity. W.E. Griffiths and K. Surekha, No. 19 - August 1985.
A Walrasian Exchange Equilibrium Interpretation of the Geary-Khamis International Prices. D.S. Prasada Rao, No. 20 - October 1985.

On Using Durbins h-Test to Va#date the Partial-Adjustment Model. H.E. Doran, No. 21 November 1985. An Investigation into the Small Sample Properties of Covariance Matrix and Pre-Test Estimators for the Probit Model. William E. Griffiths, R. Carter Hill and Peter J. Pope, No. 22 - November 1985. A Bayesian Framework for Optimal lnput Allocation with an Uncertain Stochastic Production Function. William E. Griffiths, No. 23 - February 1986. A Frontier Production Function for Panel Data: With Appfication to the Australian Dairy Industry. T.J. Coelli and G.E. Battese, No. 24 - February 1986. Identification and Estimation of Elasticities of Substitution for Firm-Level Production Functions Using Aggregative Data. George E. Battese and Sohail J. Malik, No. 25 April 1986. Estimation of Elasticities of Substitution for CES Production Functions Using Aggregative Data on Selected Manufacturing Industries in Pakistan. George E. Battese and Sohail J. Malik, No. 26 - April 1986. Estimation of Elasticities of Substitution for CES and VES Production Functions Using Firm-Level Data for Food-Processing Industries in Pakistan. George E. Battese and Sohail J. Malik, No. 27 - May 1986. On the Prediction of Technical Efficiencies, Given the Specifications of a Generalized Frontier Production Function and Panel Data on Sample Firms. George E. Battese, No. 28 - June 1986.

29

A General Equilibrium Approach to the Construction of Multilateral Index Numbers. D.S. Prasada Rao and J. Salazar-Carrillo, No. 29 - August 1986.
Further Results on Interval Estimation in an AR(1) Error Model. H.E. Doran, W.E. Griffiths and P.A. Beesley, No. 30 - August 1987.

Bayesian Econometrics and How to Get Rid of Those Wrong Signs. William E. Griffiths, No. 31 - November 1987. Confidence Intervals for the Expected Average Marginal Products of Cobb-Douglas Factors With Applications of Estimating Shadow Prices and Testing for Risk Aversion. Chris M. Alaouze, No. 32 - September 1988.
Estimation of Frontier Production Functions and the Efficiencies of Indian Farms Using Panel Data from ICRISATs Village Level Studies. G.E Battese, T.J. Coelli and T.C. Colby, No. 33 - January 1989.

Estimation of Frontier Production Functions: A Guide to the Computer Program, FRONTIER. Tim J. Coelli, No. 34 -February 1989.
An Introduction to Australian Economy-Wide Modelling. Colin P. Hargreaves, No. 35 February 1989. Testing and Estimating Location Vectors Under Heteroskedasticity. William Griffiths and George Judge, No. 36 - February 1989.

The Management of Irrigation Water During Drought. Chris M. Alaouze, No. 37 - April 1989.
An Additive Property of the Inverse of the Survivor Function and the Inverse of the Distribution Function of a Strictly Positive Random Variable with App#cations to Water Allocation Problems. Chris M. Alaouze, No. 38- July 1989. A Mixed Integer Linear Programming Evaluation of Salinity and Waterlogging Control Options in the Murray-Dar#ng Basin of Austra#a. Chris M. Alaouze and Campbell R. Fitzpatrick, No. 39 - August 1989. Estimation of Risk Effects with Seemingly Unrelated Regressions and Panel Data. Guang H. Wan, William E. Griffiths and Jock R. Anderson, No. 40 - September 1989. The Optima#ty of Capacity Sharing in Stochastic Dynamic Programming Problems of Shared Reservoir Operation. Chris M. Alaouze, No. 41 - November 1989. Confidence Intervals for Impulse Responses from VAR Models: A Comparison of Asymptotic Theory and Simulation Approaches. William Griffiths and Helmut Liatkepohl, No. 42 - March 1990.

30

A Geometrical Expository Note on Hausmans Specification Test. Howard E. Doran, No. 43 - March 1990. Using The Kalman Filter to Estimate Sub-Populations. Howard E. Doran, No. 44 - March 1990.
Constraining Kalman Filter and Smoothing Estimates to Satisfy Time-Varying Restrictions. Howard Doran, No. 45 - May 1990.

Multiple Minima in the Estimation of Models with A utoregressive Disturbances. Howard Doran and Jan Kmenta, No. 46 - May 1990.
A Method for the Computation of Standard Errors for Geary-Khamis Parities and International Prices. D.S. Prasada Rao and E.A. Selvanathan, No. 47 - September 1990.

Prediction of the Probability of Successful First-Year University Studies in Terms of High School Background: With Appfication to the Faculty of Economic Studies at the University of New England. D.M. Dancer and H.E. Doran, No. 48 - September 1990.
A Generalized Theil-Tornqvist Index for Multilateral Comparisons. D.S. Prasada Rao and E.A. Selvanathan, No. 49- November 1990. Frontier Production Functions and Technical Efficiency: A Survey of Empirical Appfications in Agricultural Economics. George E. Battese, No. 50 - May 1991.

Consistent OLS Covariance Estimator and Misspecification Test for Models with Stationary Errors of Unspecified Form. Howard E. Doran, No. 51 - May 1991. Testing Non-NestedModels. Howard E. Doran, No. 52 - May 1991.
Estimation of Australian Wool and Lamb Production Technologies: An Error Components Approach. C.J. ODonnell and A.D. Woodland, No. 53 - October 1991.

Competitiveness Indices and the Trade Performance of the Australian Manufacturing Sector. C. Hargreaves, J. Harrington and A.M. Siriwardarna, No. 54 - October 1991. Modelling Money Demand in Australian Economy-Wide Models: Some Preliminary Analyses. Colin Hargreaves, No. 55 - October 1991. Frontier Production Functions, Technical Efficiency and Panel Data: With Application to Paddy Farmers in lndia. G.E. Battese and T.J. Coelli, No. 56 - November 1991. Maximum Likelihood Estimation of Stochastic Frontier Production Functions with TimeVarying Technical Efficiency using the Computer Program, FRONTIER Version 2.0. T.J. Coelli, No. 57 - October 1991. Securities and Risk Reduction in Venture Capital Investment Agreements. Barbara Cornelius and Colin Hargreaves, No. 58 - October 1991. 31

The Role of Covenants in Venture Capital Investment Agreements. Barbara Cornelius and Colin Hargreaves, No. 59 - October 1991.
A Comparison of Alternative Functional Forms for the Lorenz Curve. Duangkamon Chotikapanich, No. 60 - October 1991. A Disequilibrium Model of the Australian Manufacturing Sector. Colin Hargreaves and Melissa Hope, No. 61 - October 1991. Overnight Money-Market lnterest Rates, The Term Structure and The Transmission Mechanism. Colin Hargreaves, No. 62- November 1991. A Study of the lncome Distribution Underlying the Rasche, Gaffney, Koo and Obst Lorenz Curve. Duangkamon Chotikapanich, No. 63 - May 1992. Estimation of Stochastic Frontier Production Functions with Time-Varying Parameters and Technical Efficiencies Using Panel Data from lndian Villages. G.E. Battese and G.A. Tessema, No. 64 - May 1992. The Demand for Australian Wool: A Simultaneous Equations Model Which Permits Endogenous Switching. C.J. O~onnell, No. 65 -June 1992.
A Stochastic Frontier Production Function blcorporating Flexible Risk Properties. Guang H. Wan and George E. Battese, No. 66 - June 1992. Income Inequality in Asia, 1960-1985: A Decomposition Analysis. Ma. Rebecca J. Valenzuela, No. 67 - April 1993.

A MIM1C Approach to the Estimation of the Supply and Demand for Construction Materials in the U.S. Alicia N. Rambaldi, R. Carter Hill and Stephen Farber, No. 68 August 1993. A Stochastic Frontier Production Function Incorporating A Model For Technical Inefficiency Effects. G.E. Battese and T.J. Coelli, No. 69 - October 1993. Finite Sample Properties of Stochastic Frontier Estimators and Associated Test Statistics. Tim Coelli, No. 70 - November 1993. Measurement of Total Factor Productivity Growth and Biases in Technological Change in Western Australian Agriculture. Tim J. Coelli, No. 71 -December 1993.
An

Investigation of Stochastic Frontier Production Functions Involving Farmer Characteristics Using 1CRISA T Data From Three lndian Villages. G.E. Battese and M. Bernabe, No. 72 - December 1993.

A Monte Carlo Analysis of Alternative Estimators of the Tobit Model. Getachew Asgedom Tessema, No. 73 - April 1994.

32

A Bayesian Estimator of the Linear Regression Model with an Uncertain Inequality Constraint. W.E. Griffiths and A.T.K. Wan, No. 74 - May 1994. Predicting the Severity of Motor Vehicle Accident lnjuries Using Models of Ordered Multiple Choice. C.J. O~onnell and D.H. Connor, No. 75- September 1994. ldenti.fication of Factors which lnfluence the Technical Inefficiency of lndian Farmers. T.J. Coelli and G.E. Battese, No. 76 - September 1994. Bayesian Predictors for an AR(1) Error Model. William E. Griffiths, No. 77 - September 1994. Small Sample Performance of Non-Causality Tests in Cointegrated Systems. Hector O. Zapata and Alicia N. Rambaldi, No. 78 - December 1994. Engel Scales for Austra#a, the Philippines and Thailand: A Comparative Analysis. Ma. Rebecca J. Valenzuela, No. 79 - August 1995. Maximum Likelihood Estimation of HousehoM Equivalence Scales from an Extended Linear Expenditure System." Application to the 1988 Australian Household Expenditure Survey. William E. Griffiths and Ma. Rebecca J. Valenzuela, No. 80 November 1995. Bayesian Estimation of the Linear Regression Model with an Uncertain lnterval Constraint on Coefficients. Alan T.K. Wan and William E. Griffiths, No. 81 November 1995. Unemployment, GDP, and Crime Rate: The Short- and Long-run Relationship for the Australian Case. Alicia N. Rambaldi, Tony Auld and Jonathan Baldry, No. 82 November 1995. Applying Linear Time-varying Constraints to Econometric Models: An Appfication of the Kalman Filter. Howard E. Doran and Alicia N. Rambaldi, No. 83 - November 1995. An lmproved Heckman Estimator for the Tobit Model. Getachew Asgedom Tessema, Howard Doran and William Griffiths, No. 84 - March 1996. New Guinea GoM or Bust: Detection of Trends in the Quafity of Coffee Exports in Papua New Guinea. Chai McConnell, Alicia Rambaldi and Euan Fleming, No. 85 - March 1996. On the Estimation of Production Functions Involving Explanatory Variables Which Have Zero Values. George E Battese, No. 86 - May 1996.

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