Food away from home (FAFH) is an important component of the demand for food and hence, the nutritional intake of adults and children in the United States. Hence, policies designed to influence nutritional outcomes should address the role of FAFH. However, most studies of the response of demand for food to policy changes have ignored the role of FAFH, which means the estimates must be biased, while those studies that have included FAFH have treated it as a single good, giving rise to potential aggregation biases. In this study we estimate a demand system including a FAFH and alcoholic beverages composite (i.e., the aggregate of the three products modeled in the second stage), along with nine food at home (FAH) products (cereals and bakery products, dairy, red meat, poultry, fish, eggs, fruits and vegetables, other foods, and nonalcoholic beverages), and a nonfood composite. We also model allocations within the FAFH and alcoholic beverages composite, treating it as the second stage of a two-stage budgeting process. We estimate the demand for two FAFH products: food from full-service restaurants and other FAFH (including food from limited-service restaurants, vending services, and employee and school cafeterias) and alcoholic beverages as a weakly separable group. Using both the first- and second-stage estimates, we approximate elasticities of demand for disaggregated FAFH products conditional on total expenditure for nonfood. We find that the demands for the two FAFH products respond differently to changes in their own-product prices, other product prices and total expenditure for all goods.
