MAIDS UNDER ADDITIVE PREFERENCES: SOME EARLY ESTIMATES

Working's model (1943) yields Engel curves which are a good approximation to observed consumer behaviour over substantial variations in real income; these Engel curves cannot be globally applicable, however, since budget shares are driven outside the [0, 11 interval at large values of real income. Computable general equilibrium (CGE) modelling often needs demand specifications which remain regular over wide variations in variables. Cooper and McLaren's MAIDS demand system (1987, 1988) is such a specification. Here we describe a special case of MAIDS in differential form which synthesises ideas from the Rotterdam School (e.g., Theil (1967)) and from Additive Preferences (Houthakker (1960)) to yield a demand system which is parsimonious in the use of parameters yet regular over a very wide range of variation in real income. The system is successfully fitted to a five-commodity sub-system of Australian consumer expenditure over the period 1953-54 through 1985-86. The Frisch 'parameter' is reinterpreted (along the lines suggested by Sato (1972)) in terms of the average elasticity of substitution