Tricks with Hicks: The EASI Demand System
American Economic Review
vol. 99,
no. 3, June 2009
(pp. 827-63)
Abstract
We invent Implicit Marshallian demands, which combine desirable features of Hicksian and Marshallian demands. 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 have any shape over real expenditures. EASI error terms equal random utility parameters to account for unobserved preference heterogeneity. EASI demand functions can be estimated using GMM or three stage least squares, and, like AID, an approximate EASI model can be estimated by linear regression. (JEL D11, D12)Citation
Lewbel, Arthur, and Krishna Pendakur. 2009. "Tricks with Hicks: The EASI Demand System." American Economic Review, 99 (3): 827-63. DOI: 10.1257/aer.99.3.827Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis