Publisher Summary This chapter discusses the criteria for the selection of functional forms and compatibility of the criteria for the selection of functional forms In the discussion of functional forms, examples are drawn largely from the empirical analyses of production and consumer demand, because the restrictions implied by the respective theories on functional forms are richer Neither economic theory nor available empirical knowledge provides, in general, a sufficiently complete specification of the economic functional relationship to determine its precise algebraic form Consequently, the econometrician has wide latitude in deciding which one of many possible algebraic functional forms to use in building an econometric model The chapter illustrates an example of the incompatibility of a global extrapolative domain of applicability and flexibility and an example of the incompatibility of computational facility and factual conformity An impossibility theorem stating that there does not exist an algebraic functional form for a unit cost function, which has a global extrapolative domain of applicability and satisfies the criteria of flexibility and computational facility, is proved in the chapter

Chapter 26 Functional forms in econometric model building

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Theoretical Foundations for the Rotterdam Model

Functional forms in econometric model building

Publisher Summary “Demand analysis” refers largely to the study of commodity demands by consumers, most usually based on aggregate data but occasionally, and more so recently, on cross-sections or even panels of households. This chapter discusses the links between conventional demand analysis and such topics as labor supply, the consumption function, rationing, index numbers, equivalence scales, and consumer surplus. The econometric analysis of demand under conditions of rationing or quantity constraints is discussed in the chapter. The chapter discusses intertemporal demand analysis, including the analysis of the consumption function and of durable goods, the choice over qualities, and the links between demand analysis and welfare economics—particularly as it concerns the measurement of consumer surplus, cost-of-living index numbers, and the costs of children

Chapter 30 Demand analysis

In 1915 the Russian statistician and economist Eugen Slutsky sent off from Kiev an article to the Giornale degli economisti that was translated and published in the July issue of that journal: “Sulla teoria del bilancio del consumatore.” This article passed unnoticed. As is now well known, Slutsky’s article is one of the most famous examples of those neglected and ignored works whose originality and importance are recognized only after similar results have been obtained by others.

/pdf/slutsky-s-1915-article-how-it-came-to-be-found-and-4u2jr1qy4c.pdf

R. Henn

Papers

Statistical Tests of the Theory of Consumer Behavior