Evaluating the Linearized Almost Ideal Demand System

Adolf Buse ()

American Journal of Agricultural Economics, 1994, vol. 76, issue 4, 781-793

Abstract: Linearizing the Almost Ideal Demand System (LAIDS) by recourse to the Stone share weighted price index is common practice. Two issues are addressed here. First, scrutiny of the errors-in-variables implications of the linearization reveals that, not only is the SUR estimator inconsistent, but a consistent IV estimator cannot be constructed. Second, some alternatives to the Green-Alston elasticities specifically designed for the LAIDS model are developed, but neither these nor the Green-Alston elasticities are found to have any advantages over the conventional elasticity formulae. Some errors in the Green-Alston (1990) paper are corrected. The inconsistency and elasticity issues are documented by a Monte Carlo investigation.

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:76:y:1994:i:4:p:781-793.

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