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Accounting For Aggregation Bias In Almost Ideal Demand Systems

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  • Mittelhammer, Ronald C.
  • Shi, Hongqi
  • Wahl, Thomas I.

Abstract

This study revisits the consistent aggregation (over households) property of almost ideal demand system (AIDS) models and presents a method to explicitly account for expenditure aggregation bias when estimating the aggregate AIDS model with time-series data. Ignoring aggregation bias can lead to biased and inconsistent parameter estimates and can cause aggregate demand functions to be inconsistent with the demand functions at the individual household level. Recognizing the general limited information contained in aggregate time-series data for explicitly modeling aggregation bias, we present a new method of constructing an aggregation bias term that is derived from the proportions of household in different income groups. This information is generally available in developed economies. We use this framework to estimate aggregate meat demand within a complete demand system based on U.S. annual expenditure data.

Suggested Citation

  • Mittelhammer, Ronald C. & Shi, Hongqi & Wahl, Thomas I., 1996. "Accounting For Aggregation Bias In Almost Ideal Demand Systems," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(02), December.
  • Handle: RePEc:ags:jlaare:31032
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    References listed on IDEAS

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    1. Esteban, Joan M, 1986. "Income-Share Elasticity and the Size Distribution of Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 439-444, June.
    2. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, vol. 52(3), pages 647-663, May.
    3. Majumder, Amita & Chakravarty, Satya Ranjan, 1990. "Distribution of Personal Income: Development of a New Model and Its Application to U.S. Income Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(2), pages 189-196, April-Jun.
    4. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
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    Cited by:

    1. Shinn-Shyr Wang & Kyle W. Stiegert & Tirtha P. Dhar, 2010. "Strategic Pricing Behavior under Asset Value Maximization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(2), pages 151-170, June.
    2. Eales, James S. & Hyde, Jeffrey & Schrader, Lee F., 1998. "A Note On Dealing With Poultry In Demand Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(02), December.
    3. Kim, Renee B. & Veeman, Michele M., 2001. "Korean Beef Import Preferences: Implications For Trade Patterns In The Twenty First Century," International Trade in Livestock Products Symposium, January 18-19, 2001, Auckland, New Zealand 14561, International Agricultural Trade Research Consortium.
    4. Lee, Young-Jae & Kennedy, P. Lynn, 2008. "Demand System Analysis of the South Korean Beef Market with the Free Trade Demand Model," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6825, Southern Agricultural Economics Association.
    5. Garrett, Thomas A., 2003. "Aggregated versus disaggregated data in regression analysis: implications for inference," Economics Letters, Elsevier, vol. 81(1), pages 61-65, October.
    6. Dong, Diansheng & Capps, Oral, Jr., 1998. "Impacts Of Income Distribution On Market Demand," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20996, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Wang, Zijun & Bessler, David A, 2002. "The Homogeneity Restriction and Forecasting Performance of VAR-Type Demand Systems: An Empirical Examination of US Meat Consumption," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(3), pages 193-206, April.
    8. Lee, Young-Jae & Kennedy, P. Lynn, 2009. "Effects of Price and Quality Differences in Source Differentiated Beef on Market Demand," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(01), April.
    9. Thomas A. Garrett, 2002. "Aggregated vs. disaggregated data in regression analysis: implications for inference," Working Papers 2002-024, Federal Reserve Bank of St. Louis.
    10. Tselepidakis, Elina, 2012. "Food Safety And The Demand For Meat Products," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124968, Agricultural and Applied Economics Association.

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    Keywords

    Demand and Price Analysis;

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