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Quantity Versus Shares in Estimating Demand Systems

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  • Paris, Quirino
  • Caracciolo, Francesco

Abstract

This paper considers the estimation and testing of demand systems when the number of sample goods is smaller than the number of commodity choices available to consumers. In this case, the demand system is incomplete. The large majority of papers that appeared in the literature specifies and estimates a demand system in share format even when the system may be incomplete. The criterion for deciding whether a share format is admissible without loss of information is a test of the adding-up condition. This test, however, requires the estimation of a demand system in quantity format.

Suggested Citation

  • Paris, Quirino & Caracciolo, Francesco, 2012. "Quantity Versus Shares in Estimating Demand Systems," Working Papers 124575, University of California, Davis, Department of Agricultural and Resource Economics.
  • Handle: RePEc:ags:ucdavw:124575
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    References listed on IDEAS

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    1. Moschini, Giancarlo, 1998. "The semiflexible almost ideal demand system," European Economic Review, Elsevier, vol. 42(2), pages 349-364, February.
    2. Brown, Bryan W & Walker, Mary Beth, 1989. "The Random Utility Hypothesis and Inference in Demand Systems," Econometrica, Econometric Society, vol. 57(4), pages 815-829, July.
    3. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2006. "An Empirical Comparison of Flexible Demand System Functional Forms," World Scientific Book Chapters,in: Money And The Economy, chapter 13, pages 247-277 World Scientific Publishing Co. Pte. Ltd..
    4. Barnett, William A. & Serletis, Apostolos, 2008. "Consumer preferences and demand systems," Journal of Econometrics, Elsevier, vol. 147(2), pages 210-224, December.
    5. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    6. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    7. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    8. Alston, Julian M. & Chalfant, James A. & Piggott, Nicholas E., 2001. "Incorporating demand shifters in the Almost Ideal demand system," Economics Letters, Elsevier, vol. 70(1), pages 73-78, January.
    9. J. A. L. Cranfield & James S. Eales & Thomas W. Hertel & Paul V. Preckel, 2003. "Model selection when estimating and predicting consumer demands using international, cross section data," Empirical Economics, Springer, vol. 28(2), pages 353-364, April.
    10. Moschini, GianCarlo, 1998. "Semiflexible Almost Ideal Demand System, The," Staff General Research Papers Archive 1193, Iowa State University, Department of Economics.
    11. Fry, Jane M. & Fry, Tim R. L. & McLaren, Keith R., 1996. "The stochastic specification of demand share equations: Restricting budget shares to the unit simplex," Journal of Econometrics, Elsevier, vol. 73(2), pages 377-385, August.
    12. G. D. N. Worswick & D. G. Champernowne, 1954. "A Note on the Adding-up Criterion," Review of Economic Studies, Oxford University Press, vol. 22(1), pages 57-59.
    13. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    14. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
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    More about this item

    Keywords

    demand systems; quantity format; share format; adding up; Demand and Price Analysis; Research Methods/ Statistical Methods; C01; C31; C33; D12;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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