A Rational Rank Four Demand System
AbstractPast parametric tests of demand system rank employed polynomial Engel curve systems. However, by Gorman's (1981) theorem, the maximum possible rank of a utility derived polynomial demand system is three. The present paper proposes a class of demand systems that are utility derived, are close to polynomial, and have rank four. These systems nest rational polynomial demands, and so can be used to test ranks up to four. These systems are suitable for applications where high rank is likely, such as demand systems involving a large number of goods. A test of rank using this new class of systems is applied to UK consumer demand data.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 463.
Length: 13 pages
Date of creation: 31 May 2000
Date of revision: 04 Apr 2003
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demand systems; rank; utility functions; Engel curves;
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