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A New System of Consumer Demand Equations

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  • Conniffe, D.

    (Economics, Finance and Accounting Department and NIRSA NUI Maynooth)

Abstract

This paper commences from a new indirect utility function and derives the corresponding system of equations, relating commodity demands to prices and income, that satisfies the constraints imposed by utility maximisation (aggregation, homogeneity, Slutsky symmetry and negativity). As the famous linear expenditure system (LES) is a special case of this new system, it is named the generalised Stone-Geary system (GSGS) and it incorporates a generalisation of the ‘subsistance’ income concept to one of ‘committed’ income. However, the GSGS is not subject to the well known limitations of the LES and it can model a reasonably representative range of consumer behaviour. It is also relatively parsimonious in parameters involving just 3n – 1, where n is the number of commodities. The new system has greater ranges of theoretical validity than various systems derived from ‘flexible’ functional forms. As with the LES, simple conditions on the parameters guarantee the validity of the system for all variable values except, perhaps, at low incomes.

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Bibliographic Info

Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1140402.

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Length: 21 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:may:mayecw:n1140402

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Phone: 353-1-7083728
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Web page: http://economics.nuim.ie
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References

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  1. Murty, K N, 1982. "Theoretical Restrictions on the Parameters of Indirect Addilog Demand Equations-A Comment," Econometrica, Econometric Society, vol. 50(1), pages 225-27, January.
  2. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839 Elsevier.
  3. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-83, June.
  4. Gamaletsos, Theodore, 1973. "Further analysis of cross-country comparison of consumer expenditure patterns," European Economic Review, Elsevier, vol. 4(1), pages 1-20, April.
  5. Prof. Denis Conniffe, 2002. "Sums and Products of Indirect Utility Functions," NIRSA Working Paper Series 6, National Institute for Regional and Spatial Analysis (NIRSA), NUI Maynooth, Ireland..
  6. Denis Conniffe, 2002. "Sums and Products of Indirect Utility Functions," The Economic and Social Review, Economic and Social Studies, vol. 33(3), pages 285-295.
  7. Akin, John S & Stewart, John F, 1979. "Theoretical Restrictions on the Parameters of Indirect Addilog Demand Equations," Econometrica, Econometric Society, vol. 47(3), pages 779-80, May.
  8. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-32, June.
  9. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  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 652-68, August.
  11. Somermeyer, W. H. & Langhout, A., 1972. "Shapes of Engel curves and demand curves: Implications of the expenditure allocation model, applied to Dutch data," European Economic Review, Elsevier, vol. 3(3), pages 351-386, November.
  12. Lau, Lawrence J., 1986. "Functional forms in econometric model building," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 26, pages 1515-1566 Elsevier.
  13. Pollak, Robert A, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 401-14, October.
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Cited by:
  1. Conniffe, D., 2002. "Sums and Products of Indirect Utility Functions," Economics, Finance and Accounting Department Working Paper Series n1150402, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Prof. Denis Conniffe, 2002. "Sums and Products of Indirect Utility Functions," NIRSA Working Paper Series 6, National Institute for Regional and Spatial Analysis (NIRSA), NUI Maynooth, Ireland..

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