Existence of Habits and Empirical Demand Analysis: A Case Study for Urban Household's Dairy Products Demand in Iran

The analysis of household consumption pattern and consumers reaction to the price and non-price factors are very important for policymakers and agri-food market participants. In this regard, selecting and estimating demand by the best functional form could be a reliable tool for analyzing consumers’ behavior. In this study was applied three dynamic demand models includes Assarsson, Rey and generalized Rotterdom. Hereafter, dairy products demand include milk, yogurt, cheese and butter was estimated for urban households in Iran by mentioned functional forms and Rey’s model was chosen as the best model. Also Wald test results strongly confirmed habit formation in the four dairy products demand. Also disregarding the habits effects can lead to a bias in the estimated parameters and analysis of household consumption pattern. Therefore the test of existence of habits is recommended, especially in analyzing food products demand.