Aggregation Effects on Price and Expenditure Elasticities in a Quadratic Almost Ideal Demand System
AbstractWhile it is well known that demand elasticities calculated at the macro level will in general differ from those calculated at the micro level because of aggregation effects there remain the questions of how large the effects are, and how they vary with the degree of nonuniformity in the income distribution. We explore those questions with models based on a quadratic version of the Almost Ideal Demand System. We investigate the elasticity differences theoretically and then calibrate the models and generate numerical results, using income data for seven countries with widely different distributions. The aggregation effects are found generally to be rather small, even with highly nonuniform income distributions.
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Bibliographic InfoPaper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 374.
Length: 27 pages
Date of creation: Jul 2002
Date of revision:
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demand elasticities; aggregation effects; quadratic almost ideal demand system;
Other versions of this item:
- Frank Denton & Dean Mountain, 2004. "Aggregation effects on price and expenditure elasticities in a quadratic almost ideal demand system," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 613-628, August.
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
- D10 - Microeconomics - - Household Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-08-16 (All new papers)
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- Frank T. Denton & Dean C. Mountain, 2011. "Aggregation and Other Biases in the Calculation of Consumer Elasticities for Models of Arbitrary Rank," Quantitative Studies in Economics and Population Research Reports 447, McMaster University.
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