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The Benefit Function Approach to Modeling Price‐Dependent Demand Systems: An Application of Duality Theory
Author(s) -
McLaren Keith R.,
Wong K. K. Gary
Publication year - 2009
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.1467-8276.2009.01318.x
Subject(s) - inverse demand function , duality (order theory) , inverse , function (biology) , mathematical economics , demand curve , economics , econometrics , mathematical optimization , computer science , mathematics , microeconomics , geometry , discrete mathematics , evolutionary biology , biology
In this article, we advocate more extensive use of the benefit function in specifying price‐dependent or inverse demand models. We demonstrate how duality theory may be used to establish the interrelationships between the Marshallian (or Hicksian) inverse demands and Luenberger's adjusted price functions, allowing estimable inverse demands to be derived directly from a benefit function. We estimate two systems of inverse demands for Japanese quarterly fish consumption. Results indicate that the procedures and methods employed here appear promising, and may prove beneficial for quantity and welfare analysis when modeling systems of inverse demand functions.