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Regular and Estimable Inverse Demand Systems: A Distance Function Approach

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  • Gary K.K. Wong
  • Keith R. McLaren

Abstract

To be useful for realistic policy simulation in an environment of rapid structural change, inverse demand systems must remain regular over substantial variations in quantities. The distance function is a convenient vehicle for generating such systems. While it directly yields Hicksian inverse demand functions, those functions will not usually have an explicit representation in terms of the observable variables. Note however that this problem need not hinder estimation and could be solved by using the numerical inversion estimation approach. This paper develops the formal theory for using distance functions in this context, and demonstrates the operational feasibility of the method.

Suggested Citation

  • Gary K.K. Wong & Keith R. McLaren, 2002. "Regular and Estimable Inverse Demand Systems: A Distance Function Approach," Monash Econometrics and Business Statistics Working Papers 6/02, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2002-6
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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2002/wp6-02.pdf
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    References listed on IDEAS

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    Cited by:

    1. Powell, Alan A. & McLaren, Keith R. & Pearson, K.R. & Rimmer, Maureen T., 2002. "Cobb-Douglas Utility - Eventually!," Conference papers 330977, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    Inverse Demands; Distance Functions; Numerical Inversion Estimation Method; Separability.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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