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Cobb-Douglas Utility - Eventually!

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Author Info

  • Alan A. Powell

    ()

  • Keith R. McLaren

    ()

  • K.R. Pearson
  • Maureen Rimmer

Abstract

Consider the following two opinions, both of which can be found in the literature of consumer demand systems: (a) As the real income of a consumer becomes indefinitely large, re-mixing the consumption bundle becomes irrelevant: having chosen the ultimately satisfying budget shares at any given set of relative prices, the superlatively wealthy continue to allocate additional income in the same proportions. With very large and increasing per capita income, ultimately the utility function becomes indistinguishable from Cobb-Douglas. (b) Consumer demand systems in which the income elasticities monotonically approach one (from above, in the case of luxuries; from below, in the case of necessities) are unsatisfactory both theoretically and empirically. For instance, a necessity with a low (

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Bibliographic Info

Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 12/02.

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Length: 23 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:msh:ebswps:2002-12

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Keywords: consumer demand system; applied general equilibrium; separability; implicitly directly additive preferences; effectively global regularity; Cobb-Douglas; calibration; AIDADS.;

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References

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  1. 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.
  2. 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.
  3. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-30, May.
  4. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Society for Computational Economics, vol. 9(2), pages 83-127, May.
  5. Cranfield, John & James Eales & Thomas W. Hertel & Paul Preckel, 1998. "Changes in the Structure of Global Food Demand," GTAP Working Papers 295, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  6. 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.
  7. Gary K.K. Wong & Keith R. McLaren, 2002. "Regular and Estimable Inverse Demand Systems: A Distance Function Approach," Monash Econometrics and Business Statistics Working Papers 6/02, Monash University, Department of Econometrics and Business Statistics.
  8. W. Jill Harrison & K.R. Pearson & Alan A. Powell & E. John Small, 1993. "Solving Applied General Equilibrium Models Represented as a Mixture of Linearized and Levels Equation," Centre of Policy Studies/IMPACT Centre Working Papers ip-61, Victoria University, Centre of Policy Studies/IMPACT Centre.
  9. Cooper, Russel J & McLaren, Keith R & Parameswaran, Priya, 1994. "A System of Demand Equations Satisfying Effectively Global Curvature Conditions," The Economic Record, The Economic Society of Australia, vol. 70(208), pages 26-35, March.
  10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  11. Mark Horridge, 2000. "ORANI-G: A General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers op-93, Victoria University, Centre of Policy Studies/IMPACT Centre.
  12. Maureen T. Rimmer & Alan A. Powell, 1992. "Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System," Centre of Policy Studies/IMPACT Centre Working Papers op-75, Victoria University, Centre of Policy Studies/IMPACT Centre.
  13. Alan A. Powell, 1992. "Sato's Insight on the Relationship between the Frisch 'Parameter' and the Average Elasticity of Substitution," Centre of Policy Studies/IMPACT Centre Working Papers g-99, Victoria University, Centre of Policy Studies/IMPACT Centre.
  14. Coyle, William T. & Mark Gehlhar & Thomas W. Hertel & Zhi Wang & Wusheng Yu, 1998. "Understanding the Determinants of structural Change in World Food Markets," GTAP Working Papers 260, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  15. Maureen T. Rimmer & Alan A. Powell, 1994. "Engel Flexibility in Household Budget Studies: Non-parametric Evidence versus Standard Functional Forms," Centre of Policy Studies/IMPACT Centre Working Papers op-79, Victoria University, Centre of Policy Studies/IMPACT Centre.
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Cited by:
  1. Gelan, Ayele Ulfata, 2007. "Does food aid have disincentive effects on local production? A general equilibrium perspective on food aid in Ethiopia," Food Policy, Elsevier, vol. 32(4), pages 436-458, August.
  2. 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.
  3. Preckel, Paul V. & Cranfield, John A.L. & Hertel, Thomas W., 2005. "Implicit Additive Preferences: A Further Generalization Of The Ces," 2005 Annual meeting, July 24-27, Providence, RI 19373, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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