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Specification and Estimation of Regular Inverse Demand Systems: A Distance Function Approach
Author(s) -
Wong K. K. Gary,
McLaren Keith R.
Publication year - 2005
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2005.00772.x
Subject(s) - inversion (geology) , observable , inverse , computer science , inverse demand function , representation (politics) , context (archaeology) , estimation , mathematical optimization , function (biology) , inverse problem , inverse function , mathematics , demand curve , economics , mathematical analysis , paleontology , physics , geometry , management , quantum mechanics , structural basin , evolutionary biology , politics , political science , law , biology , microeconomics
To allow realistic policy simulations in a changing environment, inverse demand systems must remain regular over substantial variations in quantities. The distance function is a convenient vehicle for generating such systems. While its use directly yields Hicksian inverse demand functions, those functions will not usually have an explicit representation in terms of the observable variables. However, this problem need not hinder estimation and can be solved by using a numerical inversion estimation approach. This article develops the formal theory for using distance functions in this context and demonstrates the operational feasibility of the method.