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Estimating PIGLOG Demands Using Representative versus Average Expenditure

  • Hahn, William F.
  • Taha, Fawzi
  • Davis, Christopher G.

Economists often use aggregate time series data to estimate consumer demand functions. Some of the popular applied demand systems have a PIGLOG form. In the most general PIGLOG cases the “average” demand for a good is a function of the representative consumer expenditure not the average consumer expenditure. We would need detailed information on each period’s expenditure distribution to calculate the representative expenditure. This information is generally unavailable, so average expenditures are invariably used. Since we are estimating these demand systems using the wrong expenditure terms, our estimates may be wrong. There are special cases where the average expenditure is a perfect proxy for the representative expenditure. We do an indirect test of this case by estimating a demand system using quarterly U.S. data on three categories of consumer expenditure. To the usual price and expenditure effects we added variables that may be associated with shifts in the distribution of expenditure.

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File URL: http://purl.umn.edu/149351
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Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149351.

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Date of creation: 20 May 2013
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Handle: RePEc:ags:aaea13:149351
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  1. Keller, W.J. & Van Driel, J., 1985. "Differential consumer demand systems," European Economic Review, Elsevier, vol. 27(3), pages 375-390.
  2. Nicholas E. Piggott, 2000. "The Incidence of the Costs and Benefits of Generic Advertising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 665-671.
  3. Hahn, William F., 1988. "Effects of Income Distribution on Meat Demand," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 2.
  4. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
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