Form Of Demand Function Research Articles

Sensitivity of optimal commodity taxes to relaxing leisure/goods separability and to the wage rate

This paper uses a new labour-augmented demand functional form to calculate optimal commodity taxes for India. The optimal taxes, which are far from uniform, are extremely sensitive to deviation from leisure/goods separability and to variation in the wage-rate parameter.

Sensitivity of ‘optimal’ commodity tax rates to alternative demand functional forms: An econometric case study of India

This study investigates, on a nine commodity disaggregation of Indian budget data (NSS, 28th round), the sensitivity of ‘optimal’ commodity tax rates to alternative demand systems. LES and RNLPS. ‘Optimality’ is used here in the very special sense of being conditional on observed expenditure and fixed consumer prices. The alternative sets of tax rates agree at low levels of ‘inequality aversion’ but disagree widely at ‘Rawlsian’ levels. LES is heavily rejected in favour of its one-parameter generalisation, RNLPS. The results suggest that LES price elasticities should not be used in ‘optimal’ tax calculations. The ‘optimal’ tax rates imply only a modest redistribution.

Specification and time series estimation of dynamic Gorman Polar Form demand systems

This paper proposes and estimates demand functional forms which are based on (a) nonseparable generalisations of LES, and (b) dynamic generalisations which extend the linear habit formation idea to incorporate more complex habit forming behaviour and allow purchases in the more distant past to affect current behaviour. The paper uses a new general demand functional form which, like the ‘Almost Ideal Demand System’, satisfies ‘consistent’ aggregation across individuals but, unlike it, allows for a separate test of linear Engel curves and additively separable preferences. The results of estimation on U.K. time series data (1900–1980) are, generally, positive and point to a degree of complexity in dynamic demand behaviour that is greater than seems to have been appreciated hitherto in the empirical literature.

Consumer Demand Explained by Measurable Utility Changes

Percentage changes in marginal utility are found to be invariant to utility transformations. They are quantifiable in the ordinary sense, and price and income elasticities can be expressed in terms of them. Definitions of necessityluxury, independence and complementarity-substitutability in terms of the measurable utility changes lead to insights for empirical studies. A POTENTIALLY rich source of insights about demand behavior is the wantsatiation characteristics of goods, i.e., degree of necessity or luxury of goods and degree of complementarity or substitutability between them. These characteristics have been stubborn against attempts to bring them into demand analysis. Despite decades of interest, the literature does not appear to have produced satisfactory definitions of complements and substitutes. Previous necessity-luxury analyses have rested on assumed differences in algebraic form of demand functions. Necessity-luxury attributes have not been expressed in terms of the usual utility concepts of consumer choice theory. 2 In the present article, measurable want-satiation characteristics of goods are derived by considering changes in marginal utility when expenditures are shifted within the consumer's budget. It is demonstrated that the percentage change in marginal utility of a good is invariant to utility transformations and can be related to price and income elasticities. This result is due to the previously overlooked fact that the percentage change in the marginal utility of a good, when moving along a given indifference curve, is identical to a change in the marginal rate of substitution brought about by moving from one indifference curve to another. The measurability of percentage changes in marginal utility is thus seen to be as reasonable as the measurability of the marginal rate of substitution. Two systems of percentage changes in marginal utility are developed. The ei system is appropriate for considering one good vis-a-vis all other goods. In this system, an increase in expenditure on a particular good is accompanied by an equal reduction in expenditure distributed among all other goods so