Noel Blisard

Distinguishing between Market Participation and Infrequency of Purchase Models of Butter Demand

Household butter expenditures are modeled by market participation and infrequency-of-purchase specifications. The market participation model assumes that zero expenditures represent either traditional corner solutions or consumers who never use the product, whereas the infrequency-of-purchase model assumes that zero expenditures represent either corner solutions or consumption out of storage. We determine that the infrequency-of-purchase specification is preferred to the market participation model by applying a nonnested test based upon likelihood functions. If household expenditure surveys contained information about participation and frequency of purchase, a likelihood function which contained both models could be written and estimated.