Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems

Kiminori Matsuyama, Philip Ushchev
2017 Social Science Research Network  
We characterize three classes of demand systems, all of which are defined non-parametrically: homothetic demand systems with a single aggregator (HSA), those with direct implicit additivity (HDIA), and those with indirect implicit additivity (HIIA). In HSA, all the cross-price effects are captured by one price aggregator, while in HDIA and in HIIA, they are captured by two price aggregators. Each of these three classes contains CES as a special case. Yet, they are pairwise disjoint with the
more » ... exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES.
doi:10.2139/ssrn.3015279 fatcat:pfbozo2oajactftn5dmmnjv4ay