Estimation of Theoretically Plausible Demand Functions from U.S. Consumer Expenditure Survey Data

TLDR: The estimation of demand systems in which the demand equations satisfy all of the restrictions of neoclassical theory of demand has long been considered a triumph of applied econometrics, for the resulting equations both honor the budget constraint and are consistent with an underlying (usually ordinal) utility function as mentioned in this paper.

Abstract: The estimation of demand systems in which the demand equations satisfy all of the restrictions of neoclassical theory of demand has long been considered a triumph of applied econometrics, for the resulting equations both honor the budget constraint and are consistent with an underlying (usually ordinal) utility function. Many such “theoretically plausible” systems are represented in the literature, ranging from simple linear expenditure equations to systems embodying exotic Gorman polar forms. Unlike in Chapter 6, the analysis of this chapter is confined to data sets that pool across the four quarters of 1996.