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Stochastic Specification and Maximum-Likelihood Estimation of the Linear Expenditure System

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  • Chipman, John S.
  • Tian, Guoqiang

Abstract

From the point of view of consumer demand theory the linear expenditure system (LES) provides a convenient model for representing consumer response to price and income and its linearity is one of its most attractive features. But when estimation problems are discussed, the descriptive adjective is more notable for its irony than its accuracy. Since Stone (1954) first calculated parameter estimates for the LES, some stochastic specifications for the system have been given. These specifications, however, ignore some of the requirements implied by economic theory and these methods of estimation lack desirable properties. This paper will deal with the problems of stochastic specification and maximum-likelihood estimation of the LES making full use of the restrictions of economic theory by assuming that the minimum required quantities for the commodities have a three-parameter multivariate lognormal distribution.

Suggested Citation

  • Chipman, John S. & Tian, Guoqiang, 1989. "Stochastic Specification and Maximum-Likelihood Estimation of the Linear Expenditure System," MPRA Paper 41385, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41385
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    References listed on IDEAS

    as
    1. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    2. 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.
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    Cited by:

    1. Tian, Guoqiang & Chipman, John S., 1989. "A Class of Dynamic Demand Systems," MPRA Paper 41387, University Library of Munich, Germany.

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    More about this item

    Keywords

    Stochastic Specification; Maximum-Likelihood Estimation; Linear Expenditure System;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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