A modified, implicit, directly additive demand system

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Abstract:

A recently developed demand system, nicknamed AIDADS (An Implicit, Directly Additive Demand System), offers an approach to capturing consumer preferences across a wide range of expenditure levels. AIDADS generalizes the LES by assuming marginal budget shares vary with utility and hence with expenditure. Like the LES, AIDADS includes subsistence parameters that define minimum consumption levels. Here we present a modified AIDADS (MAIDADS) that replaces the constant subsistence parameters with functions that also vary with utility; these transformed subsistence levels are referred to as minimum consumption quantities. This model is applied to the 1996 International Consumption Project data. As these data span a wide range of expenditure levels, MAIDADS offers a viable alternative for the estimation of a 'global demand system'. Results suggest minimum consumption quantities for staple grains, livestock, other food products, alcohol and tobacco, clothing and footwear and transport and transport services vary with expenditure, while those for rent and fuel and household furnishings and operations are zero and invariant across expenditure levels. Only the minimum consumption quantity for staple grains declines with expenditure.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701591361

Affiliations: 1: Department of Agricultural Economics, Purdue University, West Lafayette, Indiana, USA 2: Department of Food Agricultural and Resource Economics, University of Guelph, Guelph, Ontario, Canada, N1G 2W1

Publication date: January 1, 2010

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