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On the Estimation of Demand Systems Through Consumption Efficiency

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  • Eduardo Ley

    (Resources for the Future)

  • Mark F.J. Steel

Abstract

We consider a Bayesian implementation of a new approach to estimating Demand Systems. This approach, suggested by Varian (1990), is based on a generalization of Afriat's (1967) efficiency index. The model we propose leads to a very tractable posterior and predictive analysis, yet allows for interesting economic interpretations. We conduct a sensitivity analysis with respect to the prior in an application to annual aggregate U.S. consumption data, and conclude that the sample is quite informative. Average efficiency and expected budget shares are examined in some detail.

Suggested Citation

  • Eduardo Ley & Mark F.J. Steel, 1995. "On the Estimation of Demand Systems Through Consumption Efficiency," Econometrics 9503001, University Library of Munich, Germany, revised 22 Feb 1996.
    • Handle: RePEc:wpa:wuwpem:9503001
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    References listed on IDEAS

    as
    1. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    2. Koop, Gary & Steel, Mark F.J. & Osiewalski, Jacek, 1992. "Posterior analysis of stochastic frontier models using Gibbs sampling," DES - Working Papers. Statistics and Econometrics. WS 3677, Universidad Carlos III de Madrid. Departamento de Estadística.
    3. Koop, Gary & Osiewalski, Jacek & Steel, Mark F J, 1994. "Bayesian Efficiency Analysis with a Flexible Form: The AIM Cost Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 339-346, July.
    4. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
    5. Ley, Eduardo & Steel, Mark F.J., 1992. "Bayesian econometrics:conjugate analysis and rejection sampling using mathematica," UC3M Working papers. Economics 2887, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Koop, Gary & Osiewalski, Jacek & Steel, Mark F J, 1994. "Bayesian Efficiency Analysis with a Flexible Form: The AIM Cost Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 339-346, July.
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    Citations

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    Cited by:

    1. Inha Oh & Jeong-Dong Lee & Seogwon Hwang & Almas Heshmati, 2010. "Analysis of product efficiency in the Korean automobile market from a consumer’s perspective," Empirical Economics, Springer, vol. 38(1), pages 119-137, February.
    2. Jeong-Dong Lee & Chansoo Park & Dong-Hyun Oh & Tai-Yoo Kim, 2008. "Measuring consumption efficiency with utility theory and stochastic frontier analysis," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2961-2968.

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    More about this item

    Keywords

    Bayesian Methods; Budget Shares; Money-Metric Utility; Monte Carlo;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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