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On the estimation of 'an implicitly additive demand system'

Author

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  • John Cranfield
  • Paul Preckel
  • James Eales
  • Thomas Hertel

Abstract

Motivated by a lack of Engel flexibility in commonly used demand systems, Rimmer and Powell developed a new demand system. This system, referred to AIDADS, is implicitly, directly additive, possesses marginal budget shares and thus Engel elasticities, that vary nonlinearly with expenditure such that predicted budget shares are restricted to the [0,1] interval. Due to these attractive Engel properties, AIDADS represents a significant contribution to the literature on demand analysis. This paper presents an alternative estimation procedure to the one used by Rimmer and Powell and examines its properties via a case study. The proposed approach avoids a linear approximation employed in Rimmer and Powell's estimation framework. Based on a small Monte Carlo study, it appears that the approach produces more accurate estimates of the parameters and Engel elasticities.

Suggested Citation

  • John Cranfield & Paul Preckel & James Eales & Thomas Hertel, 2000. "On the estimation of 'an implicitly additive demand system'," Applied Economics, Taylor & Francis Journals, vol. 32(15), pages 1907-1915.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:15:p:1907-1915
    DOI: 10.1080/00036840050155832
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    References listed on IDEAS

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    1. Maureen T. Rimmer & Alan A. Powell, 1992. "An Implicitly Directly Additive Demand System: Estimates for Australia," Centre of Policy Studies/IMPACT Centre Working Papers op-73, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
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    Cited by:

    1. Powell, Alan A. & McLaren, Keith R. & Pearson, K.R. & Rimmer, Maureen T., 2002. "Cobb-Douglas Utility - Eventually!," Conference papers 330977, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Hertel, T.W. & Preckel, P.V. & Cranfield, J.A.W. & Ivanic, M., 2002. "The impact of multiliteral agricultural trade liberalization on poverty in Brazil," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 37.
    3. Yu, Wusheng & Hertel, Thomas W. & Preckel, Paul V. & Eales, James S., 2004. "Projecting world food demand using alternative demand systems," Economic Modelling, Elsevier, vol. 21(1), pages 99-129, January.
    4. Martin Ravallion & Shaohua Chen & Prem Sangraula, 2007. "New Evidence on the Urbanization of Global Poverty," Population and Development Review, The Population Council, Inc., vol. 33(4), pages 667-701, December.
    5. Kemfert, C. & Kremers, H. & Truong, T., 2005. "The effectivity of technological innovation on mitigating the consequences of climate change policies," Conference papers 331344, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Reimer, Jeff & Hertel, Thomas, 2003. "International Cross Section Estimates of Demand for Use in the GTAP Model," GTAP Working Papers 1190, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    7. Haq, Zahoor Ul & Meilke, Karl D., 2009. "The Role of Income Growth in Emerging Markets and the BRICs in Agrifood Trade," Working Papers 48122, Canadian Agricultural Trade Policy Research Network.
    8. de Boer, P.M.C., 2009. "Modeling household behavior in a CGE model: linear expenditure system or indirect addilog?," Econometric Institute Research Papers EI 2009-16, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    9. Jeffrey J. Reimer & Thomas W. Hertel, 2010. "Nonhomothetic Preferences and International Trade," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 408-425, May.
    10. Paul Preckel & J. A. L. Cranfield & Thomas Hertel, 2010. "A modified, implicit, directly additive demand system," Applied Economics, Taylor & Francis Journals, vol. 42(2), pages 143-155.
    11. Ludena, Carlos E., 2004. "Impact Of Productivity Growth In Crops And Livestock On World Food Trade Patterns," 2004 Annual meeting, August 1-4, Denver, CO 20366, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Wolfgang Britz & Roberto Roson, 2019. "G-RDEM: A GTAP-Based Recursive Dynamic CGE Model for Long-Term Baseline Generation and Analysis," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(1), pages 50-96, June.
    13. Reimer, Jeff & Hertel, Thomas, 2003. "International Cross Section Estimates of Demand for Use in the GTAP Model," GTAP Working Papers 1190, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    14. Zahoor Haq & Karl Meilke, 2010. "Do the BRICs and Emerging Markets Differ in their Agrifood Imports?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(1), pages 1-14, February.
    15. Yu, Wusheng & Hertel, Thomas W. & Preckel, Paul V. & Eales, James S., 2004. "Projecting world food demand using alternative demand systems," Economic Modelling, Elsevier, vol. 21(1), pages 99-129, January.
    16. Preckel, Paul V. & Cranfield, John A.L. & Hertel, Thomas W., 2005. "Implicit Additive Preferences: A Generalization Of The Ces," Staff Papers 28646, Purdue University, Department of Agricultural Economics.
    17. Cranfield, J. A. L. & Preckel, Paul V. & Eales, James S. & Hertel, Thomas W., 2002. "Estimating consumer demands across the development spectrum: maximum likelihood estimates of an implicit direct additivity model," Journal of Development Economics, Elsevier, vol. 68(2), pages 289-307, August.
    18. Paul De Boer & Richard Paap, 2009. "Testing non‐nested demand relations: linear expenditure system versus indirect addilog," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 63(3), pages 368-384, August.

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