An Implicitly Directly Additive Demand System: Estimates for Australia
TL;DR: In this paper, an implicitly directly additive-preference demand system was proposed, which allows MBSs to vary as a function of total real expenditure and which is globally regular throughout that part of the price-expenditure space in which the consumer is at least affluent enough to meet subsistence requirements.
Abstract: The problem of endowing large applied general equilibrium models with numerical values for parameters is formidable. For example, a complete set of own- and cross-price elasticities of demand for the ORANI model involves 228 squared, or about 60 K items. Invoking the minimal assumptions that demand is generated by utility maximization reduces the load to about 26 K -- obviously still a number much too large for unrestrained econometric estimation. To obtain demand systems estimates for a dozen or so generic commodities at a top level of aggregation (categories like 'food', 'clothing and footwear', ...), typically Johansen's (1960) lead has been followed, and directly additive preferences imposed upon the underlying utility function. With the move beyond one-step linearized solutions of the ORANI model, the functional form of the demand system adopted becomes an issue. The most celebrated of the additive-preference demand systems, Stone's (1954) linear expenditure system (LES), has one drawback for empirical work; namely, the constancy of marginal budget shares (MBSs) -- a liability shared with the Rotterdam system (Barten, 1964, 1968; Theil, 1965, 1967). To get around this, Theil and Clements (1987) used Holbrook Working's (1943) Engel specification in conjunction with additive preferences; unfortunately both Working's formulation and Deaton and Muellbauer's (1980) AIDS have the problem that, under large changes in real incomes, budget shares can stray outside the [0,1] interval. It was such behaviour that led Cooper and McLaren (1987, 1988, 1991, forthcoming 1992) to invent MAIDS, a system with better regularity properties. MAIDS, however, is not globally compatible with any additive preference system. In this paper we specify, and estimate, at the six-commodity level, an implicitly directly additive-preference demand system which allows MBSs to vary as a function of total real expenditure and which is globally regular throughout that part of the the price-expenditure space in which the consumer is at least affluent enough to meet subsistence requirements.
Citations
More filters
01 May 1970
1,935 citations
01 Aug 2005
TL;DR: The Emissions Prediction and Policy Analysis (EPPA) model is part of the MIT Integrated Global Systems Model (IGSM) that represents the human systems as discussed by the authors, which is designed to develop projections of economic growth and anthropogenic emissions of greenhouse related gases and aerosols.
Abstract: The Emissions Prediction and Policy Analysis (EPPA) model is the part of the MIT Integrated Global Systems Model (IGSM) that represents the human systems EPPA is a recursive-dynamic multi-regional general equilibrium model of the world economy, which is built on the GTAP dataset and additional data for the greenhouse gas and urban gas emissions It is designed to develop projections of economic growth and anthropogenic emissions of greenhouse related gases and aerosols The main purpose of this report is to provide documentation of a new version of EPPA, EPPA version 4 In comparison with EPPA3, it includes greater regional and sectoral detail, a wider range of advanced energy supply technologies, improved capability to represent a variety of different and more realistic climate policies, and enhanced treatment of physical stocks and flows of energy, emissions, and land use to facilitate linkage with the earth system components of the IGSM Reconsideration of important parameters and assumptions led to some revisions in reference projections of GDP and greenhouse gas emissions In EPPA4 the global economy grows by 125 times from 2000 to 2100 (25%/yr) compared with an increase of 107 times (24%/yr) in EPPA3 This is one of the important revisions that led to an increase in CO2 emissions to 257 GtC in 2100, up from 23 GtC in 2100 projected by EPPA3 There is considerable uncertainty in such projections because of uncertainty in various driving forces To illustrate this uncertainty we consider scenarios where the global GDP grows 05% faster (slower) than the reference rate, and these scenarios result in CO2 emissions in 2100 of 34 (17) GtC A sample greenhouse gas policy scenario that puts the world economy on a path toward stabilization of atmospheric CO2 at 550 ppmv is also simulated to illustrate the response of EPPA4 to a policy constraint
686 citations
Cites background from "An Implicitly Directly Additive Dem..."
...More recently, the AIDADS (An Implicit Direct Additive Demand System) has been developed that includes the property of not only having an income elasticity different from 1, but that itself changes with per capita income (Rimmer and Powell, 1996)....
[...]
TL;DR: In this paper, the authors assess the poverty impacts of climate volatility for seven socioeconomic groups in 16 developing countries and find that extremes under present climate volatility increase poverty across their developing country sample, with urban wage earners the most vulnerable group.
Abstract: Extreme climate events could influence poverty by affecting agricultural productivity and raising prices of staple foods that are important to poor households in developing countries. With the frequency and intensity of extreme climate events predicted to change in the future, informed policy design and analysis requires an understanding of which countries and groups are going to be most vulnerable to increasing poverty. Using a novel economic-climate analysis framework, we assess the poverty impacts of climate volatility for seven socio-economic groups in 16 developing countries. We find that extremes under present climate volatility increase poverty across our developing country sample—particularly in Bangladesh, Mexico, Indonesia, and Africa—with urban wage earners the most vulnerable group. We also find that global warming exacerbates poverty vulnerability in many nations.
255 citations
Cites background or methods from "An Implicitly Directly Additive Dem..."
...Each household maximizes its utility obtained from an econometrically estimated AIDADS demand system (Rimmer and Powell 1996, Cranfield et al 2003)....
[...]
...This reduction in the severity of change in the B1 scenario is less universal for the magnitude of the extreme dry event....
[...]
TL;DR: In this paper, the authors confirm the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects and that border tax adjustment based on the carbon content in domestic production, especially if applied to both imports and exports, would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.
Abstract: There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. The authors confirm the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects. However, output and exports of energy-intensive manufactures are projected to decline potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content in domestic production. Their quantitative estimates suggest that the former action when applied to all merchandise imports would address competitiveness and environmental concerns in high income countries but with serious consequences for trading partners. For example, Chinas manufacturing exports would decline by one-fifth and those of all low and middle income countries by 8 per cent; the corresponding declines in real income would be 3.7 per cent and 2.4 per cent. Border tax adjustment based on the carbon content in domestic production, especially if applied to both imports and exports, would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.
209 citations
01 Jan 2005
TL;DR: The LINKAGE model as discussed by the authors is a global dynamic computable general equilibrium model (CGE) with a 2001 base year, which is used most recently to assess global free trade in the context of a future round of multilateral trade negotiations.
Abstract: This paper provides the complete specification of the LINKAGE Model. The latest version of the model is based on Version 6.0 of the GTAP dataset and has been used most recently to assess global free trade in the context of a future round of multilateral trade negotiations (see the World Bank's Global Economic Prospects 2002 and Global Economic Prospects 2004). The LINKAGE Model is a global dynamic computable general equilibrium model (CGE) with a 2001 base year. In its standard version, it is a neo-classical model with both factor and goods market clearing. It features three production archetypes—crops, livestock, and other—, a full range of tax instruments, price markups, multiple labor skills, vintage capital, and energy as an input combined with capital. Trade is modeled using nested Armington and production transformation structures to determine bilateral trade flows. Tariffs are fully bilateral and the model captures international trade and transportation costs—both direct and indirect (using iceberg trade costs). The latest version of the model also implements tariff rate quotas (TRQs). A recursive framework is used to drive dynamics, with savings-led investment and productivity. The model incorporates adjustment costs in capital markets and trade- responsive endogenous productivity. The core of the paper is divided into five sections—an introduction, a model overview, a detailed description of each block of the model, a discussion of model dynamics, and a description of the accounting framework underlying the model.
185 citations
References
More filters
Posted Content•
TL;DR: The Almost Ideal Demand System (AIDS) as mentioned in this paper is a first-order approximation of the Rotterdam and translog models, which has been used to test the homogeneity and symmetry restrictions of demand analysis.
Abstract: Ever since Richard Stone (1954) first estimated a system of demand equations derived explicitly from consumer theory, there has been a continuing search for alternative specifications and functional forms. Many models have been proposed, but perhaps the most important in current use, apart from the original linear expenditure system, are the Rotterdam model (see Henri Theil, 1965, 1976; Anton Barten) and the translog model (see Laurits Christensen, Dale Jorgenson, and Lawrence Lau; Jorgenson and Lau). Both of these models have been extensively estimated and have, in addition, been used to test the homogeneity and symmetry restrictions of demand theory. In this paper, we propose and estimate a new model which is of comparable generality to the Rotterdam and translog models but which has considerable advantages over both. Our model, which we call the Almost Ideal Demand System (AIDS), gives an arbitrary first-order approximation to any demand system; it satisfies the axioms of choice exactly; it aggregates perfectly over consumers without invoking parallel linear Engel curves; it has a functional form which is consistent with known household-budget data; it is simple to estimate, largely avoiding the need for non-linear estimation; and it can be used to test the restrictions of homogeneity and symmetry through linear restrictions on fixed parameters. Although many of these desirable properties are possessed by one or other of the Rotterdam or translog models, neither possesses all of them simultaneously. In Section I of the paper, we discuss the theoretical specification of the AIDS and justify the claims in the previous paragraph. In Section II, the model is estimated on postwar British data and we use our results to test the homogeneity and symmetry restrictions. Our results are consistent with earlier findings in that both sets of restrictions are decisively rejected. We also find that imposition of homogeneity generates positive serial correlation in the errors of those equations which reject the restrictions most strongly; this suggests that the now standard rejection of homogeneity in demand analysis may be due to insufficient attention to the dynamic aspects of consumer behavior. Finally, in Section III, we offer a summary and conclusions. We believe that the results of this paper suggest that the AIDS is to be recommended as a vehicle for testing, extending, and improving conventional demand analysis. This does not imply that the system, particularly in its simple static form, is to be regarded as a fully satisfactory explanation of consumers' behavior. Indeed, by proposing a demand system which is superior to its predecessors, we hope to be able to reveal more clearly the problems and potential solutions associated with the usual approach.
4,620 citations
01 May 1970
1,935 citations
1,351 citations