An Extended Linear Expenditure System with Assets

The Economic Record, 1991, vol. 0, issue 0, pages 109-17

Abstract: In this paper, Lluch's Extended Linear Expenditure System (ELES) is generalized to accommodate the portfolio behavior of an individual when future asset returns are uncertain. Using Merton's continuous-time methodology for modeling individual behavior under uncertainty, a new system, called the Extended Linear Expenditure System with Assets, is derived. This system contains both a modified form of the ELES and a set of asset demand equations. The latter are quite simple expressions representing portfolio behavior in a way that is fully consistent with the Tobin/Markowitz model in a static single-period setting. Copyright 1991 by The Economic Society of Australia.

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