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The Benefit Function Approach to Modeling Price-Dependent Demand Systems: An Application of Duality Theory

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  • Keith R. McLaren
  • K. K. Gary Wong

Abstract

In this article, we advocate more extensive use of the benefit function in specifying price-dependent or inverse demand models. We demonstrate how duality theory may be used to establish the interrelationships between the Marshallian (or Hicksian) inverse demands and Luenberger’s adjusted price functions, allowing estimable inverse demands to be derived directly from a benefit function. We estimate two systems of inverse demands for Japanese quarterly fish consumption. Results indicate that the procedures and methods employed here appear promising, and may prove beneficial for quantity and welfare analysis when modeling systems of inverse demand functions. Copyright 2009, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2009.01318.x
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 91 (2009)
Issue (Month): 4 ()
Pages: 1110-1123

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Handle: RePEc:oup:ajagec:v:91:y:2009:i:4:p:1110-1123

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  1. Moschini, GianCarlo & Moro, D., 1994. "Autocorrelation Specification in Singular Equation Systems," Staff General Research Papers 11134, Iowa State University, Department of Economics.
  2. Hoanjae Park & Walter N. Thurman, 1999. "On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 950-958.
  3. Holt, Matthew T., 2002. "Inverse demand systems and choice of functional form," European Economic Review, Elsevier, vol. 46(1), pages 117-142, January.
  4. Eales, James S. & Unnevehr, Laurian J., 1994. "The inverse almost ideal demand system," European Economic Review, Elsevier, vol. 38(1), pages 101-115, January.
  5. Robert H. Beach & Matthew T. Holt, 2001. "Incorporating Quadratic Scale Curves in Inverse Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 230-245.
  6. Pollak, R.A. & Wales, T.J., 1990. "The Likelihood Dominance Criterion: A New Approach To Model Selection," Discussion Papers in Economics at the University of Washington 90-10, Department of Economics at the University of Washington.
  7. James Eales & Catherine Durham & Cathy R. Wessells, 1997. "Generalized Models of Japanese Demand for Fish," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1153-1163.
  8. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
  9. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-30, May.
  10. Michele Baggio & Jean-Paul Chavas, 2006. "On the Consumer Value of Environmental Diversity," Working Papers 35, University of Verona, Department of Economics.
  11. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
  12. Deaton, Angus, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 391-405, July.
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Cited by:
  1. Jean-Michel Courtault & Bertrand Crettez & Naïla Hayek, 2008. "Complementarity and Substitutability: A Dual Approach Based on Luenberger's Benefit Function," Working Papers halshs-00447417, HAL.
  2. Hovhannisyan, Vardges & Bozic, Marin, 2013. "A Benefit-Function Approach to Studying Market Power: An Application to the U.S. Yogurt Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(2), August.
  3. Anonymous & Bosch, Darrell J., 2013. "Table of contents," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(02), May.
  4. Hovhannisyan, Vardges & Stiegert, Kyle W. & Bozic, Marin, 2013. "On Endogeneity Of Retail Market Power In An Equilibrium Analysis: A Control Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149830, Agricultural and Applied Economics Association.
  5. Wong, K.K. Gary, 2013. "An empirical investigation of the trade benefit function," Economics Letters, Elsevier, vol. 119(2), pages 150-153.
  6. Jean-Paul Chavas & Michele Baggio, 2010. "On duality and the benefit function," Journal of Economics, Springer, vol. 99(2), pages 173-184, March.
  7. Chavas, Jean-Paul, 2013. "On Demand Analysis and Dynamics: A Benefit Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149683, Agricultural and Applied Economics Association.

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