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
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)
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Working Paper: Beyond Ces: Three Alternative Classes of Flexible Homothetic Demand Systems (2017)
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