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An investigation into the demand for alcoholic beverages in Canada: a choice between the almost ideal and the Rotterdam models

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  • Akhter Faroque

Abstract

In this article I investigate the historical pattern of interactions in the demand for three categories of alcoholic beverages in Canada, using both the differential Almost Ideal and the differential Rotterdam demand systems. I evaluate these models based on several decision criteria including model encompassment (based on the J-test), structural stability, conformity with demand theory and the credibility of the estimated price and income responses, in an attempt to determine which of these models is better suited for explaining the demand for alcoholic beverages. The results reveal that both models satisfy the restrictions of demand theory and of structural stability but the Rotterdam model is preferable on grounds of the remaining two criteria.

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  • Akhter Faroque, 2008. "An investigation into the demand for alcoholic beverages in Canada: a choice between the almost ideal and the Rotterdam models," Applied Economics, Taylor & Francis Journals, vol. 40(16), pages 2045-2054.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:16:p:2045-2054
    DOI: 10.1080/00036840600949363
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    1. Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc.
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