Tricks With Hicks: The EASI Demand System

Arthur Lewbel and Krishna Pendakur

No 651, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We invent Implicit Marshallian Demands, a new type of demand function that combines desirable features of Hicksian and Marshallian demand functions. We propose and estimate the Exact Affine Stone Index (EASI) Implicit Marshallian Demand system. Like the Almost Ideal Demand (AID) system, EASI budget shares are linear in parameters given real expenditures. However, unlike the AID, EASI demands can have any rank and its Engel curves can be polynomials or splines of any order in real expenditures. EASI error terms equal random utility parameters to account for unobserved preference heterogeneity. EASI demand functions can be estimated using ordinary GMM, and, like AID, an approximate EASI model can be estimated by linear regression.

Keywords: Consumer demand; Demand systems; Hicks; Marshallian; Cost functions; Expenditure functions; Utility; Engel curves. (search for similar items in EconPapers)
JEL-codes: C31 C33 C51 D11 D12 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2006-09-04, Revised 2008-11-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published, American Economic Review, June 2009

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Journal Article: Tricks with Hicks: The EASI Demand System (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:651

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