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Evaluating the Linearized Almost Ideal Demand System
Author(s) -
Buse Adolf
Publication year - 1994
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 - 10.2307/1243739
Subject(s) - estimator , linearization , almost ideal demand system , elasticity (physics) , scrutiny , monte carlo method , econometrics , economics , price elasticity of demand , mathematics , ideal (ethics) , mathematical economics , seemingly unrelated regressions , nonlinear system , statistics , microeconomics , physics , production (economics) , philosophy , epistemology , quantum mechanics , political science , law , thermodynamics
Abstract Linearizing the Almost Ideal Demand System (LAIDS) by recourse to the Stone share weighted price index is common practice. Two issues are addressed here. First, scrutiny of the errors‐in‐variables implications of the linearization reveals that, not only is the SUR estimator inconsistent, but a consistent IV estimator cannot be constructed. Second, some alternatives to the Green‐Alston elasticities specifically designed for the LAIDS model are developed, but neither these nor the Green‐Alston elasticities are found to have any advantages over the conventional elasticity formulae. Some errors in the Green‐Alston (1990) paper are corrected. The inconsistency and elasticity issues are documented by a Monte Carlo investigation.