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Estimation of Demand Systems Based on Elasticities of Substitution

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  • Coloma, German

Abstract

This paper develops a model for demand-system estimations, whose coefficients are own-price Marshallian elasticities and elasticities of substitution between goods. The model satisfies the homogeneity, symmetry and, eventually, adding-up restrictions implied by consumer theory. It is primarily useful for the estimation of the demands of several goods of the same industry or group of products. The characteristics of the model are compared to other existing alternatives (logarithmic, translog, AIDS and QUAIDS demand systems). The model is finally applied to estimate the demands for several carbonated soft drinks in Argentina, and its results are presented together with the ones obtained with the other estimation methods.

Suggested Citation

  • Coloma, German, 2009. "Estimation of Demand Systems Based on Elasticities of Substitution," Review of Applied Economics, Review of Applied Economics, vol. 5(1-2).
  • Handle: RePEc:ags:reapec:143214
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    References listed on IDEAS

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    1. Julian Alston & James Chalfant & Nicholas Piggott, 2002. "Estimating and testing the compensated double-log demand model," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1177-1186.
    2. Jeffrey T. LaFrance, 1986. "The Structure of Constant Elasticity Demand Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 543-552.
    3. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    4. Barten, Anton P, 1993. "Consumer Allocation Models: Choice of Functional Form," Empirical Economics, Springer, vol. 18(1), pages 129-158.
    5. Alston, Julian M & Foster, Kenneth A & Green, Richard D, 1994. "Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 351-356, May.
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    7. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
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    Cited by:

    1. Andrei Matveenko, 2017. "Logit, CES, and Rational Inattention," CERGE-EI Working Papers wp593, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    demand systems; elasticity of substitution; carbonated soft drinks; Demand and Price Analysis; Food Consumption/Nutrition/Food Safety; Marketing; C30; D12; L66;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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