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Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems

Kiminori Matsuyama and Philip Ushchev ()

No 12210, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We characterize three classes of demand systems, all of which are defined non-parametrically: homothetic demand systems with a single aggregator (HSA), those with direct implicit additivity (HDIA), and those with indirect implicit additivity (HIIA). In HSA, all the cross-price effects are captured by one price aggregator, while in HDIA and in HIIA, they are captured by two price aggregators. Each of these three classes contains CES as a special case. Yet, they are pairwise disjoint with the sole exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES.

Keywords: CES; CRS production functions; Demand systems with a single aggregator; direct implicit additivity; gross complements and gross substitutes.; homothetic preferences; indirect implicit additivity; translog (search for similar items in EconPapers)
JEL-codes: D11 D21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2017-08
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