THE LINEAR APROXIMATION OF THE ALMOST IDEAL DEMAND SYSTEM (LA/AIDS) MODEL: APPLICATION TO AGGREGATED DATA

Abstract

During the years different models for demand system analysis were developed, but one formulation that avoids many shortcomings encountered in other models is the Almost Ideal Demand System (AIDS) model, developed by A. Deaton and J. Muellbauer in 1980. Several variations of AIDS were used in applied work since 1980 (Linear Approximation of AIDS, Dynamic AIDS, etc). This paper is an application of the Linear Approximate Almost Ideal Demand System (LA/AIDS) model on an aggregated demand system. The data used for this analysis are from a database collected by ACNielsen Co. on sliced packaged luncheon meats, for Canada, during December 2000 - September 2006. Because the data are very detailed some level of aggreg ation needs to be applied. The results will illustrate th at not all the theoretical assumptions of the deman d theory hold in the case of aggregation.