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The Theoretical Regularity Properties of the Normalized Quadratic Consumer Demand Model

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  • Barnett, William A.
  • Usui, Ikuyasu

Abstract

We conduct a Monte Carlo study of the global regularity properties of the Normalized Quadratic model. We particularly investigate monotonicity violations, as well as the performance of methods of locally and globally imposing curvature. We find that monotonicity violations are especially likely to occur, when elasticities of substitution are greater than unity. We also find that imposing curvature locally produces difficulty in the estimation, smaller regular regions, and the poor elasticity estimates in many cases considered in the paper. Imposition of curvature alone does not assure regularity, and imposing local curvature alone can have very adverse consequences.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 410.

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Date of creation: 02 Oct 2006
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Handle: RePEc:pra:mprapa:410

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Keywords: Monte Carlo; flexible functional form; production; normalized quadratic; regularity; curvature; monotonicity;

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Cited by:
  1. William Barnett & Apostolos Serletis, 2008. "Consumer preferences and demand systems," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200801, University of Kansas, Department of Economics, revised Jan 2008.
  2. Färe, Rolf & Grosskopf, Shawna & Hayes, Kathy J. & Margaritis, Dimitris, 2008. "Estimating demand with distance functions: Parameterization in the primal and dual," Journal of Econometrics, Elsevier, vol. 147(2), pages 266-274, December.

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