Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems

28 Pages Posted: 15 Aug 2017

See all articles by Kiminori Matsuyama

Kiminori Matsuyama

Northwestern University - Department of Economics

Philip Ushchev

HSE Moscow

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

We characterize three classes of demand systems, all of which are defined non-parametrically: homothetic demand systems with a single aggregator (HSA), those with direct implicit additivity (HDIA), and those with indirect implicit additivity (HIIA). In HSA, all the cross-price effects are captured by one price aggregator, while in HDIA and in HIIA, they are captured by two price aggregators. Each of these three classes contains CES as a special case. Yet, they are pairwise disjoint with the sole exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES.

Keywords: CES, CRS production functions, Demand systems with a single aggregator, direct implicit additivity, gross complements and gross substitutes., homothetic preferences, indirect implicit additivity, translog

JEL Classification: D11, D21

Suggested Citation

Matsuyama, Kiminori and Ushchev, Philip, Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems (August 2017). CEPR Discussion Paper No. DP12210, Available at SSRN: https://ssrn.com/abstract=3018461

Kiminori Matsuyama (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8490 (Phone)
847-491-7001 (Fax)

Philip Ushchev

HSE Moscow ( email )

26 Shabolovka
Moscow
Russia

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