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Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems

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  • Matsuyama, Kiminori
  • Ushchev, Philip

Abstract

We characterize three classes of demand systems, all of which are defined non-parametrically: homothetic demand systems with a single aggregator (HSA), those with direct implicit additivity (HDIA), and those with indirect implicit additivity (HIIA). In HSA, all the cross-price effects are captured by one price aggregator, while in HDIA and in HIIA, they are captured by two price aggregators. Each of these three classes contains CES as a special case. Yet, they are pairwise disjoint with the sole exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES.

Suggested Citation

  • Matsuyama, Kiminori & Ushchev, Philip, 2017. "Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems," CEPR Discussion Papers 12210, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12210
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    References listed on IDEAS

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    1. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
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    Cited by:

    1. Kokovin, Sergey & Parenti, Mathieu & Thisse, Jacques-Fran�ois & Ushchev, Philip, 2017. "On the Dilution of Market Power," CEPR Discussion Papers 12367, C.E.P.R. Discussion Papers.
    2. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A view from Trade," Working Papers 1034, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    CES; CRS production functions; Demand systems with a single aggregator; direct implicit additivity; gross complements and gross substitutes.; homothetic preferences; indirect implicit additivity; translog;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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