Relationships Between US Consumer Expenditures on Communications and Transportation Using Almost Ideal Demand System Modeling: 1984–2002

Abstract

This study analyzes aggregate consumer expenditure data from the US between 1984 and 2002, to determine relationships between expenditures on transportation and communications. We first identified 15 categories of goods – nine for transportation, five for communications, and one for all others – and obtained prices for each category across time. Then, we applied the linear approximate almost ideal demand system (AIDS) method for estimating consumer demand functions, aggregating the categories to six (non-personal vehicle (PV), PV capital, PV operation, electronic communications media, print communications media, and all others) due to the small sample size. The results indicate that transportation and communications categories have both substitution and complementarity relationships. The existence of effects in both directions (substitution and complementarity) is testimony to the complexity of the relationships involved, with both generation and replacement possible and happening simultaneously. In addition, expenditures in the transportation categories are generally more income-elastic and price-elastic than those in communications, indicating that communications expenditures are more essential than those for travel. The transportation categories have both substitution and complementarity relationships with each other, while the two communications categories have a substitution relationship.