On allowing endogenous minimum consumption bounds in the Multiple Discrete Continuous Choice Model: An application to expenditure patterns

Abstract

This study develops a novel econometric model that allows for the endogenous identification of minimum bounds on consumption. This is done by combining a censored Tobit model with a Multiple Discrete Continuous Extreme Value model. Whilst the former is employed to identify the minimum consumption of a good/service based upon the socio-demographic characteristics of the consumer, the latter is used to assess multiple discrete continuous consumption patterns. The proposed modelling framework is applied to investigate individuals’ expenditure behaviour with the attention being placed on the following expenditure categories: Transport, Shopping, Child Care, Entertainment, Household Bills, and Rent/Mortgage.