Further Evidence on the Structure of Consumer Demand in the U. S.: An Application of the Separability Hypothesis

Abstract

The applied economic literature abounds with reports on the estimation of parameters of consumer demand functions. Early attempts were hindered by an inadequate understanding of the theory and inappropriate statistical methods. In following the developments both from the point of view of the evolution of methods and the applied results the patterns are rather clear. Until rather recently demand parameters were estimated by single equation least squares methods. However, as the theory and econometric methods developed, it became clear that these early results were only under special circumstances correct. That is, it became clear that specific demand equations should be estimated within the complete systems explaining market prices and quantities. This observation spawned a number of empirical studies incorporating simultaneous equations methods in estimating systems of demand functions. Results obtained by this more general approach were again however of rather limited generality. The limitations in this case were due to the ad hockery involved in specifying the systems. More specifically, since demand equations contain all