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Modelling regular and estimable inverse demand systems : a distance function approach

McLaren, K. and Wong, G. 2002, Modelling regular and estimable inverse demand systems : a distance function approach, in CEA 2002 : Program of the 36th Annual Meeting of the Canadian Economics Association, Canadian Economics Association, Calgary, Alberta.

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Title Modelling regular and estimable inverse demand systems : a distance function approach
Author(s) McLaren, K.
Wong, G.
Conference name Meeting of the Canadian Economics Association (36th : 2002 : Calgary, Alberta)
Conference location Calgary, Alberta
Conference dates 30 May-2 Jun. 2002
Title of proceedings CEA 2002 : Program of the 36th Annual Meeting of the Canadian Economics Association
Publication date 2002
Publisher Canadian Economics Association
Place of publication Calgary, Alberta
Summary To be useful for policy simulation in the current climate of rapid structural change, inverse demand systems must remain regular over substanstial variations in quantities. The distance function is a convenient vehicle for generating such systems. It also allows convenient imposition of prior ideas about the structure of preferences required for realistic policy work. While the distance function directly yields Hicksian inverse demand functions via the Shepard-Hanoch lemma, they are usually explicit in the unobservable level of utility (u), but lack a closed-form representation in terms of the observable variables. Note however that the unobservability of u need not hinder estimation. A simple one-dimensional numerical inversion allows the estimation of the distance function via the parameters of the implied Marshallian inverse demand functions. This paper develops the formal theory for using distance functions in this context, and reports on initial trials on the operational feasibility of the method.
Language eng
Field of Research 140303 Economic Models and Forecasting
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category E2 Full written paper - non-refereed / Abstract reviewed
Copyright notice ©2002, Canadian Economics Association
Persistent URL http://hdl.handle.net/10536/DRO/DU:30013837

Document type: Conference Paper
Collection: School of Economics
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