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The Use of Conditional Cost Functions to Generate Estimable Mixed Demand Systems
Author(s) -
Wong K. K. Gary,
Park Hoanjae
Publication year - 2007
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.1467-8276.2007.00976.x
Subject(s) - unobservable , econometrics , variable (mathematics) , range (aeronautics) , representation (politics) , economics , observable , function (biology) , computer science , mathematical optimization , mathematics , mathematical analysis , materials science , physics , quantum mechanics , evolutionary biology , politics , political science , law , composite material , biology
Mixed demand systems have been virtually ignored in empirical work solely because derivation of these systems requires closed forms for both direct and indirect utility functions. This article proposes the alternative of using a conditional cost function to generate empirical mixed demand models. This approach allows the estimation of mixed demand systems, which are explicit in an unobservable variable (utility), but may lack a closed form representation in terms of observable variables such as prices, quantities and expenditure. Results indicate that this approach is operationally feasible, which opens up a wider range of mixed demand specifications in static analyses.