Functional forms and habit effects in the US demand for coffee
Abstract
Coffee remains the leading hot beverage consumed in the United States. The present study specifies for estimation an unrestrictive Box-Cox demand model (1957-87 data) and its nested forms, to provide more recent estimates and assess potential functional misspecification in past studies fitting a priori restrictive models; incorporates the (health trend) effects of sugar and orange juice and tests the compatibility of coffee demand data with the habit formation hypothesis; and assesses implications of demand elasticity estimates for projected producer revenues and demand for imported coffee. Maximum-likelihood estimates of the Box-Cox model: automatically satisfy theoretical demand properties; support strongly incorporating habits and related beverage and sugar prices in coffee demand models; predict inelastic US coffee consumption to reduce per capita demand 24% and increase producer revenues 6.3% in 2000. © 1992, Taylor & Francis Group, LLC. All rights reserved.
Publication Title
Applied Economics
Recommended Citation
Okunade, A. (1992). Functional forms and habit effects in the US demand for coffee. Applied Economics, 24 (11), 1203-1212. https://doi.org/10.1080/00036849200000130
