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Estimating demand elasticities under rationing

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Abstract:

Eliminating rationing in the United Kingdom following the Second World War was a concern for policy-makers because of potentially large fluctuations in post-war prices and the impact on unrationed goods. This study shows that in using virtual prices, elasticities can be estimated from a ‘free’ demand system consistent with observed consumer choices. Substitution estimates without accounting for rationing are misleading. In contrast, using virtual prices and estimating a ‘free’ market system yield results similar to those of the pre-war period. Results show that food rationing affected expenditure across unrationed goods. Rationing on other services had little effect on expenditure across unrationed goods.

Keywords: C14; E21; Wartime rationing; demand system; revealed preference; virtual prices

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.849379

Affiliations: 1: Department of Economics, California State University, Fullerton, CA, 92834, USA 2: Department of Economics and Finance, University of New Orleans, New Orleans, LA, 70148, USA

Publication date: February 1, 2014

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