TY  - JOUR
AU  - Strong,Aaron
AU  - Smith,V. Kerry
TI  - Reconsidering the Economics of Demand Analysis with Kinked Budget Constraints
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14304
PY  - 2008
Y2  - September 2008
UR  - http://www.nber.org/papers/w14304
L1  - http://www.nber.org/papers/w14304.pdf
N1  - Author contact info:
Aaron Strong
2023 Keystone Ranch Rd.
Keystone, Colorado 80435
Tel: 970-485-0945
E-Mail: strongaa@yahoo.com

V. Kerry Smith
Department of Economics
W.P. Carey School of Business
P.O. Box  879801
Arizona State University
Tempe, AZ 85287-9801
Tel: 480/727-9812
Fax: 480/965-0748
E-Mail: kerry.smith@asu.edu
AB  - This paper has two objectives.  First, we identify a problem with the ability of the discrete-continuous choice (DCC) framework and conditional demand functions to fully describe consumer preferences in the presence of kinked budget constraints.  Second, we propose and illustrate an alternative, preference based, method for estimating consumer responses to price changes under these conditions.  Our preference based approach yields price elasticities on the order of 0.4 and a "utilities expenditure" elasticity of near unity.  This research highlights the possibility that households may be more sensitive to price schedules than previously thought. It is recognizes commitments to commodities such as pools or outdoor landscaping  influence how water consumption  responds to price changes as part of the long run adjustments.
ER  -