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Chapter 6 The Normalized Quadratic Expenditure Function

In: Quantifying Consumer Preferences

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  • W. Erwin Diewert
  • Kevin J. Fox

Abstract

A concise introduction to the normalized quadratic expenditure or cost function is provided so that the interested reader will have the necessary information to understand and use this functional form. The normalized quadratic is an attractive functional form for use in empirical applications as correct curvature can be imposed in a parsimonious way without losing the desirable property of flexibility. We believe it is unique in this regard. Topics covered include the problem of cardinalizing utility, the modeling of nonhomothetic preferences, the use of spline functions to achieve greater flexibility, and the use of a “semiflexible” approach to make it feasible to estimate systems of equations with a large number of commodities.

Suggested Citation

  • W. Erwin Diewert & Kevin J. Fox, 2009. "Chapter 6 The Normalized Quadratic Expenditure Function," Contributions to Economic Analysis, in: Quantifying Consumer Preferences, pages 149-178, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:ceazzz:s0573-8555(2009)0000288009
    DOI: 10.1108/S0573-8555(2009)0000288009
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    Keywords

    Normalized quadratic;

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