A Non-Homothetic Two-Stage Decision Model Using Aids
The Review of Economics and Statistics
1985
This paper presents a theoretically consistent and tractable two-stage decision-making model that does not rely on the restrictive assumption that group aggregator functions are homothetic. By assuming that within-group cost functions satisfy the almost ideal demand system form, the model incorporates flexible expenditure effects, yet allows within-group prices to be aggregated into two indices that fully capture movements in those prices that are relevant for determining group demands. Thus, the model provides a more flexible alternative to the standard two-stage budgeting models. An empirical application to U.S. manufacturing demands, including an energy aggregate, is provided.
- DOI
- 10.2307/1924808
- Volume
- 67 (4)
- Pages
- 630
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- BibTeX
- Sources
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