Abstract
A linear expenditure system (LES) is a system of equations describing demand in terms of an expenditure equation that is a linear function of income and prices. In spatial economics, it can represent preferences across locations, which allows differences among these locations to be accounted for. A basic theoretical foundation can be established by linking a LES to a production function (e.g., Cobb–Douglas, constant elasticity of substitution) and a utility function (e.g., Stone–Geary), one assuming that average propensities to spend vary systematically with income level due to minimum subsistence requirements. One spatial econometric issue concerns the role spatial autocorrelation plays in identification, specification, and estimation of LES parameters.
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