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A modified, implicit, directly additive demand system

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  • Paul Preckel
  • J. A. L. Cranfield
  • Thomas Hertel

Abstract

A recently developed demand system, nicknamed AIDADS (An Implicit, Directly Additive Demand System), offers an approach to capturing consumer preferences across a wide range of expenditure levels. AIDADS generalizes the LES by assuming marginal budget shares vary with utility and hence with expenditure. Like the LES, AIDADS includes subsistence parameters that define minimum consumption levels. Here we present a modified AIDADS (MAIDADS) that replaces the constant subsistence parameters with functions that also vary with utility; these transformed subsistence levels are referred to as minimum consumption quantities. This model is applied to the 1996 International Consumption Project data. As these data span a wide range of expenditure levels, MAIDADS offers a viable alternative for the estimation of a 'global demand system'. Results suggest minimum consumption quantities for staple grains, livestock, other food products, alcohol and tobacco, clothing and footwear and transport and transport services vary with expenditure, while those for rent and fuel and household furnishings and operations are zero and invariant across expenditure levels. Only the minimum consumption quantity for staple grains declines with expenditure.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:2:p:143-155
    DOI: 10.1080/00036840701591361
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    1. Alan A. Powell & Keith R. McLaren & K.R. Pearson & Maureen T.Rimmer, 2002. "Cobb-Douglas Utility - Eventually!," Centre of Policy Studies/IMPACT Centre Working Papers ip-80, Victoria University, Centre of Policy Studies/IMPACT Centre.
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    3. Cranfield, John & Preckel, Paul & Hertel, Thomas, 2006. "Poverty Analysis Using an International Cross-Country Demand System," GTAP Working Papers 2211, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    4. Howe, Howard & Pollak, Robert A & Wales, Terence J, 1979. "Theory and Time Series Estimation of the Quadratic Expenditure System," Econometrica, Econometric Society, vol. 47(5), pages 1231-1247, September.
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    6. Arthur Lewbel, 2003. "A rational rank four demand system," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 127-135.
    7. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
    8. 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 652-668, August.
    9. 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.
    10. David L. Ryan & Terence J. Wales, 1999. "Flexible And Semiflexible Consumer Demands With Quadratic Engel Curves," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 277-287, May.
    11. Cranfield, J. A. L. & Preckel, Paul V. & Eales, James S. & Hertel, Thomas W., 2002. "Estimating consumer demands across the development spectrum: maximum likelihood estimates of an implicit direct additivity model," Journal of Development Economics, Elsevier, vol. 68(2), pages 289-307, August.
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    Cited by:

    1. Christophe Gouel & Houssein Guimbard, 2017. "Nutrition transition and the structure of global food demand," Working Papers 2017-05, CEPII research center.
    2. repec:gta:jnlgea:v:2:y:2017:i:1:p:1-119 is not listed on IDEAS

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