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Empirical evidence on the law of demand

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  • HARDLE, Wolfgang
  • HILDENBRAND, Werner
  • JERISON, Michael

Abstract

For market demand to satisfy the law of demand, it is sufficient that the mean of all households' income effect matrices is positive definite. The authors show how this mean income effect matrix can be estimated from cross section data under metonymy, an assumption about the distribution of household characteristics. The estimation uses the nonparametric method of average derivatives. When the method is applied to U.K. family expenditure data, the estimated mean income effect matrices are positive definite. This can be explained by a special form of heteroskedasticity in the data: households' demands are more dispersed at higher income levels. Copyright 1991 by The Econometric Society.
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Suggested Citation

  • HARDLE, Wolfgang & HILDENBRAND, Werner & JERISON, Michael, 1991. "Empirical evidence on the law of demand," CORE Discussion Papers RP 968, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:968
    Note: In : Econometrica, 59(6), 1525-1549, 1991
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    1. Kannai, Yakar, 1989. "A characterization of monotone individual demand functions," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 87-94, February.
    2. Haerdle,Wolfgang & Stoker,Thomas, 1987. "Investigations smooth multiple regression by the method of average derivatives," Discussion Paper Serie A 107, University of Bonn, Germany.
    3. Stoker, Thomas M, 1986. "Consistent Estimation of Scaled Coefficients," Econometrica, Econometric Society, vol. 54(6), pages 1461-1481, November.
    4. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
    5. Polterovich, Victor & Mityushin, Leonid, 1978. "Criteria for Monotonicity of Demand Functions," MPRA Paper 20097, University Library of Munich, Germany.
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