On the Estimation of Demand Systems through Consumption Efficiency

Eduardo Ley and Mark Steel

The Review of Economics and Statistics, 1996, vol. 78, issue 3, 539-43

Abstract: The authors consider a Bayesian implementation of a new approach to estimating demand systems. This approach, suggested by Hal R. Varian (1990), is based on a generalization of Sidney Afriat's (1967) efficiency index. The model the authors propose leads to a very tractable posterior and predictive analysis, yet allows for interesting economic interpretations. They conduct a sensitivity analysis with respect to the prior in an application to annual aggregate U.S. consumption data and conclude that the sample is quite informative. Average efficiency and expected budget shares are examined in some detail. Copyright 1996 by MIT Press.

Date: 1996
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