Using the Cost Function to Generate Marshallian Demand Systems

Posted: 25 Jan 2001

See all articles by Keith R. McLaren

Keith R. McLaren

Monash University - Department of Econometrics & Business Statistics

Peter D. Rossiter

Government of the Commonwealth of Australia - Australian Bureau of Statistics

Alan A. Powell

Monash University - Centre of Policy Studies and Impact Project

Abstract

Limited data means that prior structure is needed when working with large demand systems. The cost function is a convenient vehicle for generating demand systems incorporating such structure. While the cost function directly yields Hicksian demand functions they will not usually have an explicit representation as Marshallian demand equations i.e. in terms of the observable variables. With fast hardware and modern software, however, this need not hinder the estimation of the (implied) Marshallian demand equations. This paper develops the formal theory for using cost functions in this context, and reports on initial trials on the operational feasibility of the method.

JEL Classification: D11, D12

Suggested Citation

McLaren, Keith R. and Rossiter, Peter D. and Powell, Alan A., Using the Cost Function to Generate Marshallian Demand Systems. Empirical Economics Vol. 25, No. 2, 2000. Available at SSRN: https://ssrn.com/abstract=232709

Keith R. McLaren (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia
61-3- 9905-2395 (Phone)

Peter D. Rossiter

Government of the Commonwealth of Australia - Australian Bureau of Statistics ( email )

P.O. Box 10
Belconnen, ACT 2616
Australia

Alan A. Powell

Monash University - Centre of Policy Studies and Impact Project ( email )

& Dept. of Econometrics & Business Statistics
11th Floor Menzies Bldg, PO Box 11E
Clayton, Victoria 3800
Australia
61 3 9905 5485 (Phone)
61 3 9905 2426 (Fax)

HOME PAGE: http://www.monash.edu.au/policy/aappub.htm

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