Engel curve estimation with individual data

In order to accurately assess the impact of important individual characteristics such as income, demographic structure, location, wages and prices on commodity expenditure it is most advantageous to work with survey data at the individual level. However, all surveys on individual or household expenditures cover purchases over a limited period of time. Indeed, the more accurate the measurement in terms of precise diary records the shorter the period over which the survey can be afforded and the more likely the occurrence of reported zero expenditures. Even where the expenditure in question relates to an item or group of items for which actual consumption is positive, infrequency of purchase or the ‘durability’ of the good may result in a recorded zero expenditure. Here we wish to develop a bivariate model for the joint determination of the purchase and expenditure decision. We shall focus on the particular example of a commodity which is continuously consumed but only infrequently purchased.