Abstract
The Prais-Houthakker model has been commonly used in the analysis of the influence of socio-demographic variables on household consumption behavior. However, it has been recently criticized for being too restrictive. This paper derives the necessary and sufficient conditions that make the Prais-Houthakker model consistent with consumer theory. While some restrictions presented in the literature are sufficient to make the Prais-Houthakker model consistent with consumer theory, less restrictive conditions are derived that can validate the Prais-Houthakker model on theoretical grounds.
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