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A Modified, Implicit, Directly Additive Demand System

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  • Cranfield, John A.L.
  • Preckel, Paul V.
  • Hertel, Thomas W.

Abstract

A recently developed demand system, nicknamed AIDADS, offers a more general approach to capturing consumption preferences. AIDADS generalizes the LES by assuming marginal budget shares vary indirectly with expenditure. AIDADS is limited by the fact that the subsistence parameters are constant across expenditure. We modify AIDADS by replacing the constant subsistence parameters with a function which varies with utility, and hence expenditure. The modified AIDADS (MAIDADS) allows subsistence levels to vary with expenditure. 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 when estimating "global demand systems." Results suggest subsistence values for livestock and other food products vary with expenditure, while those for grain are constant across expenditure.

Suggested Citation

  • Cranfield, John A.L. & Preckel, Paul V. & Hertel, Thomas W., 2005. "A Modified, Implicit, Directly Additive Demand System," Working Papers 34145, University of Guelph, Department of Food, Agricultural and Resource Economics.
  • Handle: RePEc:ags:uguewp:34145
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    References listed on IDEAS

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    1. Arthur Lewbel, 2003. "A rational rank four demand system," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 127-135.
    2. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
    3. Alan A. Powell & Keith R. McLaren & K.R. Pearson & Maureen Rimmer, 2002. "Cobb-Douglas Utility - Eventually!," Monash Econometrics and Business Statistics Working Papers 12/02, Monash University, Department of Econometrics and Business Statistics.
    4. 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.
    5. 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.
    6. Maureen T. Rimmer & Alan A. Powell, 1992. "An Implicitly Directly Additive Demand System: Estimates for Australia," Centre of Policy Studies/IMPACT Centre Working Papers op-73, Victoria University, Centre of Policy Studies/IMPACT Centre.
    7. 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.
    8. 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.
    9. 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.
    10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    11. Gamaletsos, Theodore, 1973. "Further analysis of cross-country comparison of consumer expenditure patterns," European Economic Review, Elsevier, vol. 4(1), pages 1-20, April.
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    Cited by:

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

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    Keywords

    Demand and Price Analysis;

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