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Accounting For Aggregation Bias In Almost Ideal Demand Systems

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  • Mittelhammer, Ronald C.
  • Shi, Hongqi
  • Wahl, Thomas I.

Abstract

This study revisits the consistent aggregation (over households) property of almost ideal demand system (AIDS) models and presents a method to explicitly account for expenditure aggregation bias when estimating the aggregate AIDS model with time-series data. Ignoring aggregation bias can lead to biased and inconsistent parameter estimates and can cause aggregate demand functions to be inconsistent with the demand functions at the individual household level. Recognizing the general limited information contained in aggregate time-series data for explicitly modeling aggregation bias, we present a new method of constructing an aggregation bias term that is derived from the proportions of household in different income groups. This information is generally available in developed economies. We use this framework to estimate aggregate meat demand within a complete demand system based on U.S. annual expenditure data.

Suggested Citation

  • Mittelhammer, Ronald C. & Shi, Hongqi & Wahl, Thomas I., 1996. "Accounting For Aggregation Bias In Almost Ideal Demand Systems," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(2), pages 1-16, December.
    • Handle: RePEc:ags:jlaare:31032
    DOI: 10.22004/ag.econ.31032
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    1. Lee, Young-Jae & Kennedy, P. Lynn, 2008. "Demand System Analysis of the South Korean Beef Market with the Free Trade Demand Model," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6825, Southern Agricultural Economics Association.
    2. Kevin Mongeon, 2015. "A Market Test for Ethnic Discrimination in the National Hockey League," Journal of Sports Economics, , vol. 16(5), pages 460-481, June.
    3. Wang, Zijun & Bessler, David A, 2002. "The Homogeneity Restriction and Forecasting Performance of VAR-Type Demand Systems: An Empirical Examination of US Meat Consumption," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(3), pages 193-206, April.
    4. Eales, James S. & Hyde, Jeffrey & Schrader, Lee F., 1998. "A Note On Dealing With Poultry In Demand Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(2), pages 1-10, December.
    5. Wunderlich, A.C. & Kohler, A., 2018. "Using empirical Armington and demand elasticities in computable equilibrium models: An illustration with the CAPRI model," Economic Modelling, Elsevier, vol. 75(C), pages 70-80.
    6. Lee, Young-Jae & Kennedy, P. Lynn, 2009. "Effects of Price and Quality Differences in Source Differentiated Beef on Market Demand," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(1), pages 1-12, April.
    7. Shinn‐Shyr Wang & Kyle W. Stiegert & Tirtha P. Dhar, 2010. "Strategic Pricing Behavior under Asset Value Maximization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(2), pages 151-170, June.
    8. Dong, Diansheng & Capps, Oral, Jr., 1998. "Impacts Of Income Distribution On Market Demand," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20996, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Garrett, Thomas A., 2003. "Aggregated versus disaggregated data in regression analysis: implications for inference," Economics Letters, Elsevier, vol. 81(1), pages 61-65, October.
    10. Tselepidakis, Elina, 2012. "Food Safety And The Demand For Meat Products," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124968, Agricultural and Applied Economics Association.
    11. Kim, Renee B. & Veeman, Michele M., 2001. "Korean Beef Import Preferences: Implications For Trade Patterns In The Twenty First Century," 2001: International Trade in Livestock Products Symposium, January 2001, Auckland, New Zealand 14561, International Agricultural Trade Research Consortium.
    12. Thomas A. Garrett, 2002. "Aggregated vs. disaggregated data in regression analysis: implications for inference," Working Papers 2002-024, Federal Reserve Bank of St. Louis.

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