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A Demand System with Social Interactions: Evidence from CEX

Author

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  • Giacomo Pasini

    () (Department of Economics, University Of Venice Ca� Foscari; Economics and Organization, School for Advanced Studies in Venice)

Abstract

A Quadratic Almost Ideal Demand System that allows for social interactions is described and then estimated on CEX data. Social interactions are introduced as mean budget shares and depend on peer membership and visibility. Peer identification is obtained by means of a similarity index which measures the probability of group membership. Reflection problem is tackled directly and therefore estimation is carried on with a Generalized Spatial 2SLS that deal with two types of endogeneity: the first due to contemporaneous choices of households, the second due to contemporaneous choice of goods. The results support the hypothesis that total expenditure allocation to budget shares depends both on social interaction and visibility.

Suggested Citation

  • Giacomo Pasini, 2006. "A Demand System with Social Interactions: Evidence from CEX," Working Papers 2006_22, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2006_22
    as

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    More about this item

    Keywords

    Social Interactions; Demand System; Similarity; Endogeneity; Spatial Econometrics;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • 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
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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