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Effective global regularity and empirical modelling of direct, inverse, and mixed demand systems

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

Abstract

This paper utilizes the notion of ‘effective global regularity’ and the intuition stemming from Cooper and McLaren (1996)'s General Exponential Form to develop a family of ‘composite’ (product and ratio) direct, inverse and mixed demand systems. Apart from having larger regularity regions, the resulting specifications are also of potentially arbitrary rank, which can better approximate non‐linear Engel curves. We also make extensive use of duality theory and a numerical inversion estimation method to rectify the endogeneity problem encountered in the estimation of the mixed demand systems. We illustrate the techniques by estimating different types of demand systems for Japanese quarterly meat and fish consumption. Ce mémoire utilise la notion de régularité effective globale et l'intuition émergeant de la Forme Exponentielle Générale de Cooper et McLaren (1996) pour développer une famille de systèmes de demandes (directes, inverses et mixtes) composites (produit et ratio). En plus d'avoir de plus vastes régions de régularité, les spécifications qui en résultent sont aussi potentiellement de rang arbitraire, ce qui permet une meilleure approximation des courbes d'Engel non linéaires. On fait aussi un usage extensif de la théorie de la dualité, et d'une méthode numérique d'estimation de l'inversion pour corriger le problème d'endogénéité qu'on rencontre dans l'estimation des systèmes de demandes mixtes. On illustre les techniques en estimant différents types de systèmes de demandes trimestrielles de viande et de poisson par les consommateurs au Japon.

Suggested Citation

  • Keith R. McLaren & K.K. Gary Wong, 2009. "Effective global regularity and empirical modelling of direct, inverse, and mixed demand systems," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 749-770, May.
    • Handle: RePEc:wly:canjec:v:42:y:2009:i:2:p:749-770
    DOI: 10.1111/j.1540-5982.2009.01526.x
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    1. 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.
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    6. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2006. "An Empirical Comparison of Flexible Demand System Functional Forms," World Scientific Book Chapters, in: Money And The Economy, chapter 13, pages 247-277, World Scientific Publishing Co. Pte. Ltd..
    7. Chavas, Jean-Paul, 1984. "The theory of mixed demand functions," European Economic Review, Elsevier, vol. 24(3), pages 321-344, April.
    8. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-364, May.
    9. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    10. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-668, August.
    11. Richard C. Bishop & Matthew T. Holt, 2002. "A semiflexible normalized quadratic inverse demand system: an application to the price formation of fish," Empirical Economics, Springer, vol. 27(1), pages 23-47.
    12. Davidson, Russell & MacKinnon, James G., 1983. "Testing the specification of multivariate models in the presence of alternative hypotheses," Journal of Econometrics, Elsevier, vol. 23(3), pages 301-313, December.
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    Cited by:

    1. K. K. Gary Wong & Hoanjae Park, 2018. "Consumption dynamics in inverse demand systems: an application to meat and fish demand in Korea," Agricultural Economics, International Association of Agricultural Economists, vol. 49(6), pages 777-786, November.
    2. LaFrance, Jeffrey T., 2008. "The structure of US food demand," Journal of Econometrics, Elsevier, vol. 147(2), pages 336-349, December.
    3. Jeffrey LaFrance & Rulon Pope & Jesse Tack, 2011. "Risk Response in Agriculture," NBER Chapters, in: The Intended and Unintended Effects of US Agricultural and Biotechnology Policies, pages 143-186, National Bureau of Economic Research, Inc.
    4. Keith R. McLaren & Ou Yang, 2014. "A Class of Demand Systems Satisfying Global Regularity and Having Complete Rank Flexibility," Monash Econometrics and Business Statistics Working Papers 6/14, Monash University, Department of Econometrics and Business Statistics.
    5. H. Kim & Keith McLaren & K. Wong, 2013. "Empirical demand systems incorporating intertemporal consumption dynamics," Empirical Economics, Springer, vol. 45(1), pages 349-370, August.
    6. H. Youn Kim & Keith R. McLaren & K. K. Gary Wong, 2020. "Valuation of public goods: an intertemporal mixed demand approach," Empirical Economics, Springer, vol. 59(5), pages 2223-2253, November.
    7. Ingvild Almas & Ashild Johnsen, 2018. "The cost of a growth miracle - reassessing price and poverty trends in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 239-264, October.
    8. Jesse Tack & Rulon Pope & Jeffrey LaFrance & Timothy Graciano & Scott Colby, 2012. "Intertemporal Risk Management in Agriculture," Monash Economics Working Papers 16-12, Monash University, Department of Economics.
    9. H. Youn Kim & Keith R. McLaren & K.K. Gary Wong, 2014. "Consumer Demand, Consumption, and Asset Pricing: An Integrated Analysis," Monash Econometrics and Business Statistics Working Papers 4/14, Monash University, Department of Econometrics and Business Statistics.
    10. H. Youn Kim & José Alberto Molina & Ka Kei Gary Wong, 2022. "Durable Goods and Consumer Behavior with Liquidity Constraints: Evidence from Norway," Boston College Working Papers in Economics 1047, Boston College Department of Economics.
    11. K. K. G. Wong, 2013. "Trade distance functions and the derivation of inverse demand for imports," Applied Economics, Taylor & Francis Journals, vol. 45(29), pages 4160-4168, October.
    12. Jeffrey LaFrance & Rulon Pope, 2008. "The Generalized Quadratic Expenditure System," Working Papers 2008-27, School of Economic Sciences, Washington State University.
    13. Eldon V. Ball & Ricardo Cavazos & Jeffrey T. LaFrance & Rulon Pope & Jesse Tack, 2010. "Aggregation and Arbitrage in Joint Production," Monash Economics Working Papers archive-22, Monash University, Department of Economics.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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