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Primal-Dual Estimation of a Linear Expenditure Demand System

Author

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  • Paris, Quirino
  • Perali, Carlo Federico
  • Piccoli, Luca

Abstract

Efficient estimates require the utilization of all the available theoretical and statistical information. This fact suggests that econometric models based on an explicit optimization theory might achieve more efficient estimates when all the primal and dual relations are used for a joint estimation of the model’s parameters. We present a discussion of this idea using a Linear Expenditure System (LES) of consumer demand. We assume that the risk-neutral household chooses its consumption plan on the basis of expected information. Some time after that decision, the econometrician attempts to measure quantities and prices and in so doing commits measurement errors. Hence, the econometric model is an errors-in-variables nonlinear system of equations for which there is no known consistent estimator. We propose an easy-to-implement estimator and analyze its empirical properties by a Monte Carlo simulation that shows a relatively small bias.

Suggested Citation

  • Paris, Quirino & Perali, Carlo Federico & Piccoli, Luca, 2004. "Primal-Dual Estimation of a Linear Expenditure Demand System," Working Papers 93741, University of California, Davis, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucdavw:93741
    DOI: 10.22004/ag.econ.93741
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    File URL: https://ageconsearch.umn.edu/record/93741/files/04-015.pdf
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    References listed on IDEAS

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    1. Fuller, Wayne A., 1980. "The use of indicator variables in computing predictions," Journal of Econometrics, Elsevier, vol. 12(2), pages 231-243, February.
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    Cited by:

    1. Cristian Ricardo Nogales Carvajal, 2009. "Un sistema lineal de gasto: identificando patrones de consumo de alimentos en Bolivia," Investigación & Desarrollo, Universidad Privada Boliviana, vol. 1(1), pages 27-43.

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