TY  - JOUR
AU  - Herrendorf,Berthold
AU  - Rogerson,Richard
AU  - Valentinyi,Ákos
TI  - Two Perspectives on Preferences and Structural Transformation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15416
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15416
L1  - http://www.nber.org/papers/w15416.pdf
N1  - Author contact info:
Berthold Herrendorf
W.P. Carey School of Business
Department of Economics
Arizona State University
Tempe, AZ  85287-3806
Tel: 480-965-1462
Fax: 480-965-0748
E-Mail: berthold.Herrendorf@asu.edu

Richard Rogerson
Woodrow Wilson School of
  Public and International Affairs
323 Bendheim Hall
Princeton University
Princeton, NJ 08544
Tel: 609-258-4839
Fax: 609-258-5349
E-Mail: rdr@princeton.edu

Akos Valentinyi
Magyar Nemzeti Bank, 1850 Budapest
Szabadsag ter 8-9
Hungary
E-Mail: valentinyi.a@gmail.com
AB  - We ask what specification of preferences can account for the changes in the expenditure shares of broad sectors that are associated with the process of structural transformation in the U.S. since 1947. Following the tradition of the expenditure systems literature, we first calibrate utility function parameters using NIPA data on final consumption expenditure. We find that a Stone-Geary specification fits the data well. While useful, this exercise does not tell the researcher what utility function to use in a model that posits sectoral production functions in value added form. We therefore develop a method to calculate the value added components of consumption categories that are consistent with value added production functions, and use these data to calibrate a utility function over sectoral consumption value added. We find that a Leontief specification fits the data well. Interestingly, the two specifications display very different properties: for final consumption expenditure income effects are the dominant force behind changes in expenditure shares whereas for consumption value added relative price effects are dominant.
ER  -