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Utility Functions, Consumer Preferences: Global Restrictions on the Parameters of the CDES Indirect Utility Function

In: The Elements and Dynamic Systems of Economic Growth and Trade Models

Author

Listed:
  • Bjarne S. Jensen

    (University of Southern Denmark (SDU))

Abstract

This chapter studies and extends the analytical and empirical application of the basic indirect utility function of Houthakker-Hanoch—called the CDES specification (constant differences of elasticities of substitution). The non-homothetic CDES preferences are the natural parametric extension on the global domain of the constant elasticity of substitution homothetic CES preferences with many commodities, and CDES can conveniently be used in specifying multi-sector models with a demand side satisfying observable Engel curve patterns. Moreover, all Marshallian own-price elasticities are no longer restricted to exceed one, and positive and negative cross-price effects are allowed for in empirical demand analyses. Explicit CDES calculations of the Allen elasticities of substitution are instrumental in demonstrating the economic implications of the parameters of indirect utility functions and the global flexibility of the derived demand systems.

Suggested Citation

  • Bjarne S. Jensen, 2025. "Utility Functions, Consumer Preferences: Global Restrictions on the Parameters of the CDES Indirect Utility Function," Springer Books, in: The Elements and Dynamic Systems of Economic Growth and Trade Models, edition 0, chapter 0, pages 133-153, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-52493-6_5
    DOI: 10.1007/978-3-031-52493-6_5
    as

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