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What is the consumer surplus from pets?
About 64.2 million American households keep pets, at a yearly cost of about $34.4 billion, according to the American Pet Products Manufacturers Association. That amounts to about $500 per family per year, and that figure is not counting pet-themed greeting cards and other ancillary pet-related products.
I suspect that the demand curve for pets is, per family, not smooth. That is, the last pet yielded immense consumer surplus, yet the family doesn't want to buy another pet, or even rent a pet for a week each year.
The number of pets has been rising, so by how much are market prices underreflecting the implied corresponding rise in living standards?
If people are investing more and more in "identity goods," perhaps those goods don't have smooth demand curves either. Endowment effects are becoming stronger, not weaker. The very poor, for instance, can't afford such extreme attachments to assets they might need to sell, or in the case of pets, convert to food.
How strong must this effect -- the rising relative importance of endowment effects -- be to generate an extra 1% a year boost in living standards?
I very much enjoyed the new book Pets in America, by Katherine C. Grier.
Posted by Tyler Cowen on September 13, 2006 at 07:31 AM in Economics | Permalink
Comments
"The very poor, for instance, can't afford such extreme attachments to assets they might need to sell, or in the case of pets, convert to food."
Come on, this is America, not North Korea.
Posted by: Matthew Cromer at Sep 13, 2006 8:17:33 AM
Matthew, let me suggest this Slate article about
John Katz' pet cow. There are a lot of pet chickens and pigs, too, and Congress still hasn't passed the ban on exporting horse meat.
OTH, there are many poor people in this country who can't afford to properly spay, neuter, immunize, or when necessary euthanize their pets, and for whom an unexpected litter of hungry kittens is a financial crisis. I hear them arguing about the fees every time I go to the vet. The fact that people can't afford emotional attachments doesn't prevent them from making them.
Posted by: DK at Sep 13, 2006 8:59:49 AM
"for whom an unexpected litter of hungry kittens is a financial crisis"
Formerly most people would dunk them in a pail of water without giving much thought to it. Is it illegal in America?
Posted by: A Tykhyy at Sep 13, 2006 10:21:12 AM
"unexpected litter of hungry kittens" = hors d'oeuvres!
Posted by: Robert Speirs at Sep 13, 2006 10:29:36 AM
A Tykhyy, yes, drowning kittens is usually illegal in the US, and it is generally considered to be cruelty here. People with unwanted kitten litters frequently release them to live in the wild (which is also illegal), or dump them at shelters to be killed legally, or try to recruit other people to adopt them.
Since all of these options impose costs of society, there is charity and public funding available to spay/neuter your cat, but many people don't take advantage of the free funding either out of ignorance, or to avoid having anyone official notice that they should also be paying for licensing and vaccinations.
Posted by: DK at Sep 13, 2006 11:37:05 AM
Since the number of pets is still increasing, isn't that a commentary on how low living standards really are? Otherwise wouldn't we already have all the pets we want?
Posted by: Lord at Sep 13, 2006 3:31:18 PM
Do this take into account that more people are adopting pets instead of having children, thus transfering the money they would have spent on kids to pets? I know in the DC area (especially in my locale) that may be the case . . .
Posted by: Random Kath at Sep 13, 2006 4:26:42 PM
"Do this take into account that more people are adopting pets instead of having children, thus transfering the money they would have spent on kids to pets?"
> Because Children in this day and age are becoming more of a liability then a cat or dog. Children cost thousand's of dollars each year while pets are alot cheaper, it is much easier to buy a dog for a couple hundred bucks and spend under 1000 per year to upkeep it. Also, children require much more attention then the occasional walk you take your pet on. Pets are cheaper and able to give people the emotional satisfaction of a child. Just a few reasons why you are seeing this trend.
>But do i think "poor" people will start eating cats? Absolutely not, people in america value cats and dogs more then a pig.
Posted by: Eric Brailsford-Cato at Sep 13, 2006 6:43:14 PM
While the numbers of pets are rising, is the reason for increased spending on pets mainly isolated with the latest celebrity trend of pets with plush accomodations and accessories acting as an inflationary factor. For instance the number of crazy cat ladies and aficionados of neighborhood roaming hound dogs could be increasing, and a few eccentrics spending $500,000+/yr on their pets could be over compensating. Living in a rural mountain setting has taught me that often the greater number of pets equates to a lesser standard of living. Thus it would make only sense that this more of an abiration than a trend. Lending itself to a suburban/urban phenomenon combined with the increase infatuation of young rich girls w/ handbag sized pooches.
Posted by: ryan at Sep 13, 2006 8:43:51 PM
There are also both positive and negative externalities with pets. Some positive externalities are that the neighborhood children enjoy the pets. The pet might kill rodents or other unwanted creatures. Some negative externalities are that the pet may leave waste in a neighbors yard or damage a neighbors yard. Another common problem with pets today is liabilities. If someones pet attacks someone else then the owner of the pet is liable in most situations. I think that the consumer surplus from pets would change with the grade or type of pet someone is getting. For example, a person paying the average price for a dog who's parents were show quality dogs will have a larger consumer surplus than someone paying the average price for a mutt. Therefore, I am saying that a person that is purchasing a show quality pet would be willing to pay above average price for that pet. So, if they only had to pay the average price for pets that they would have a larger consumer surplus than someone paying average price for a mutt.
Posted by: econstudent79 at Sep 13, 2006 10:08:58 PM
I agree that the demand curve for pets, per family, is not likely smooth. For the average person the rate of diminishing marginal benefit is greater than other "goods" because of the amount of upkeep that is required. I would also argue that the endowment effect concerning pets is much stronger than that of almost any other "object". Even though they might not purchase another pet at the lower price level, the emotional attachment causes the pet owner to value their pet at a much higher price than a similar animal.
Posted by: Lance F at Sep 13, 2006 10:32:26 PM
i believe that the reason that the demand curve for pets may not be smooth is
because of the price of up keep on pets. the more pets the more food, vet visits,
etc. that has to be accounted for. also people grow fond of one pet and dont want to bring in another pet to divert their attention form the original pet. so why would someone buy
pet even at a cheaper cost if they have become attached to a pet?
Posted by: blake at Sep 13, 2006 11:01:42 PM
"the latest celebrity trend of pets"
Chihuahuas: They're not dogs, they're fashion accessories!
Posted by: Jacqueline at Sep 14, 2006 12:26:47 AM
A subject near and dear to my heart. I don't own a pet now but the last one I had I loved dearly and allowed him to live too long and in pain. The reason is that it was very difficult to make the decision to put him down. The emotional attachment to pets can be very great. My mother (81) lives for her pet. Her whole existence is based on the needs of that pet. The economic result is that for those caring for her we have to consider the pet's needs as being just as important as hers. This creates issues in her housing needs and traveling needs.
My sister in law is a pet groomer and now has a pet bakery and gift shop in her facility which makes almost as much money as the grooming. Her comments are that people are treating their pets as children.
I have two children and can honestly say I would not trade either one for a pet. They will provide economic benefit to me in my later years more than a pet who may or may not be around.
Pets are a complicated subject as many people feel differently about them. My husband, for example, gets really upset about the fact that my mom lives her life around her pet. "It is just an animal."
I do think the trend toward spending on pets will increase in America as the generation that has less children ages and chooses pets for companionship in their od age.
Posted by: Evelyn at Sep 14, 2006 7:09:37 AM
I don't think the spending is celebrity-driven. the chihuahua market is pretty small and not that economically relevant. As a dog owner, what I've seen drive spending is:
1. Higher vet bills and more expensive treatments; they now fix a lot of dog problems that would have once gotten the Ol' Yeller solution.
2. Owner convenience -- people spend much more on training, psychology, medication, and doggie daycare to prevent their pets from peeing on or chewing up the furniture. This is really spending money on your furniture, not on your pet.
3. Entertainment -- buying new doggie toys is probably more fun for the owner than for the dog (who might prefer a muddy stick). It's no different from buying any other toys for yourself, and yes, it rises with disposable income.
Posted by: DK at Sep 14, 2006 12:37:47 PM
I have three kitties. They are basically my kids, I admit this. But it runs in my family that we are extremely successful at raising emotionally and mentally healthy dogs and cats who are good boys and girls. It's not like our method is a big secret either:
- Understand what dogs and cats act like when left to themselves in the wild
- Understand and work with their strengths to try to overcome their natural weaknesses and other behaviors that are unacceptable in human habitations, "catch them" doing good things and reward them as much as you catch them doing bad things and punish them
- Give them lots of love and attention; never lift a hand in violence toward them
- Feed them the best and cleanest food we can afford, this makes them strong and healthy and resistant to deiseases and stress
- Assume they want to please and that abnormal behavior is almost always due to something beyond their control
- Realize that cheap toys are usually as much fun as expensive toys
- Be the adult, not the child
I was describing our pet philosophy to a friend at work, and she said, "You're the woman who told me she never wants to have kids because she's really scared of not knowing how to raise them?" Well, yes, it is true... I am frightened to death of having kids because it is so easy to innocently do something wrong that ruins their whole life. I am much more relaxed with my kitties. My friend, the mother of four grown daughters, just shakes her head at me.
Posted by: speedwell at Sep 17, 2006 12:10:59 AM
Excellent info, I liked it.
You might also find it useful to visit my website: http://www.petsmixonline.com
Posted by: alexavier at Jul 3, 2007 3:09:31 AM
Percentage of people in the US living below poverty line is approximately 12%. The poverty line for a 4 person household is approximately $22000. There are approximately 300 million people living in the United States. Maybe my mathematics is all messed up but according to my calculations if we take the amount that we spend on pets in the United States and divide that by the number of people below poverty line we would have every such household in America above the poverty line by $4,000 approximately. That is a lot of money. Of course nobody is advocating getting rid of pets and giving money to poor people. We have not reached the level of Jonathan Swift's satire yet!
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