Endogenous Classification of Urban Households in Iran

Abstract

The consequences of the implementation of price adjustment policies (e.g. reduction or redistribution of subsidies, etc.) and the way the households react to it can be far from desirable and may lead to errors on behalf of the policy makers. Obviously, the implementation of these policies has led to changes in the market, and more importantly, it will cause adjustments in food prices; such changes leave the ultimate effects on the consumers’ welfare. Therefore, when evaluating and measuring the welfare effects following these policies, it is necessary that the households be classified as the primary recipient of these policies. In this study, using a function of Engel curve and Variance homogeneity test, the Iranian urban households were classified into five independent and distinct classes regarding the similar consumption behavior in expending for food .The results show that the difference in consumption behavior concerning food expenditures is not the same for households who have different income, and this difference is greater in high-income households than in low-income ones. The greatest number of households in 2009 is in the second class, and those in 2010 and 2011 are in the second and forth class. The lowest number of households for each of the three years is in the first and fifth classes.