Imposing local curvature in the QUAIDS

Abstract

In this paper, we build on Ryan and Wales (1998), Moschini (1999), and Serletis and Shahmoradi (2007) and impose curvature conditions locally on the quadratic Almost Ideal Demand System (AIDS) model of Banks et al. (1997), an extension of the simple AIDS model of Deaton and Muellbauer (1980) that can generate quadratic Engel curves [that is, rank-three demand systems, in the terminology of Lewbel (1991)]. In doing so, we exploit the Slutsky matrix of second order derivatives of the indirect utility function.