Spatial Patterns in Household Demand

In this paper I discuss economic processes that may give rise to spatial patterns in data, and explore the relative merits of alternative modeling approaches when data are spatially correlated. Specifically, I present an estimation scheme that allows for spatial random effects, and focus attention on cases in which such a framework may be preferred to the more general fixed effects framework that nests it. I use the models presented, together with information on the location of households in an Indonesian socio-economic survey, to test spatial relationships in Indonesian demand for rice.