Declining marginal utility or constant marginal utility in the consumer characteristics model: A Box-Cox analysis of the hedonic price equation

Because of the increasing interest in nutritional attributes contained in food, hedonic price equations derived from the consumer characteristics model have been used to attempt to explain changing consumption patterns of consumers. Choice of functional form of the consumer hedonic price equation must be consistent with economic theory and show declining marginal utility for nutritional attributes. The Box-Cox methodology is used to search for the appropriate functional form of the hedonic price equation that is consistent with declining marginal utility of attributes. Past empirical work has used the linear functional form of the hedonic price equation based on pure statistical grounds and is shown to yield constant marginal utility of attributes and is inconsistent with economic theory.