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Maids Under Additive Preferences: Some Early Estimates

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  • Agrawal, Nisha
  • Powell, Alan

Abstract

Working's model (1943) yields Engel curves which are a good approximation to observed consumer behaviour over substantial variations in real income; these Engel curves cannot be globally applicable, however, since budget shares are driven outside the [0, 11 interval at large values of real income. Computable general equilibrium (CGE) modelling often needs demand specifications which remain regular over wide variations in variables. Cooper and McLaren's MAIDS demand system (1987, 1988) is such a specification. Here we describe a special case of MAIDS in differential form which synthesises ideas from the Rotterdam School (e.g., Theil (1967)) and from Additive Preferences (Houthakker (1960)) to yield a demand system which is parsimonious in the use of parameters yet regular over a very wide range of variation in real income. The system is successfully fitted to a five-commodity sub-system of Australian consumer expenditure over the period 1953-54 through 1985-86. The Frisch 'parameter' is reinterpreted (along the lines suggested by Sato (1972)) in terms of the average elasticity of substitution.

Suggested Citation

  • Agrawal, Nisha & Powell, Alan, 1989. "Maids Under Additive Preferences: Some Early Estimates," Impact Project Archive 295208, Impact Research Centre, University of Melbourne.
    • Handle: RePEc:ags:ircipa:295208
    DOI: 10.22004/ag.econ.295208
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    References listed on IDEAS

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    1. Sato, Kazuo, 1972. "Additive Utility Functions with Double-Log Consumer Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 102-124, Jan.-Feb..
    2. Lewbel, Arthur, 1987. "Fractional demand systems," Journal of Econometrics, Elsevier, vol. 36(3), pages 311-337, November.
    3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    4. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, January.
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    2. Powell, Alan A., 1992. "Sato's insight on the relationship between the Frisch 'parameter' and the average elasticity of substitution," Economics Letters, Elsevier, vol. 40(2), pages 173-175, October.

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