A LATENT VARIABLE MODEL OF CONSUMER TASTE DETERMINATION AND TASTE CHANGE FOR COMPLEX CARBOHYDRATES

Despite evidence that aggregate consumption of complex carbohydrates h as risen over the last decade, food consumption surveys suggest that f ewer households are consuming less bread, pasta, rice, potatoes and co rn. This paper estimates systems of complex carbohydrate demand using cross-sectional data from 1977-78 and 1987-88 in order to explain this paradox. Changes in demand that are not explained by changes in price s or income are explained by variations in taste. Because tastes canno t be directly observed, the paper uses a multiple indicator and multip le cause (MIMIC) model to construct a suitable proxy variable. In the MIMIC approach, the 'indicators' are residuals from a household demand function that includes prices and incomes as explanatory variables, w hile household and demographic proxies are 'cause' variables. The obje ctives in applying the MIMIC model are to determine the effect of cons umer tastes on complex carbohydrate demand and, comparing cross-sectio nal survey data from two different periods, test the hypothesis that t hese tastes change over time. The data consist of US complex carbohydr ate prices and expenditures, taken from the USDA Household Food Consum ption Surveys in 1977-78 and 1987-88. The results show that structural changes in demand, or those that are not explained by changes in pric e, income, or the cause variables, led to an increase in complex carbo hydrate demand of 5% from 1977-78 to 1987-88. However, changes in dema nd explained by the cause variables cause demand to fall by 9%.