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© 1992 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

Estimation of a two-stage LES-AIDS consumer demand system for eight EC countries*

J. MICHALEK and M. A. KEYZER

Institut für Landwirtschaftliche Betriebs-und Arbeitslehre Kiel
Free University Amsterdam

Received April 1, 1991;

Summary

This paper discusses specification and an estimation of a two-stage LES-AIDS consumer demand system for eight EC countries. The upper level allocates uncommitted expenditure via an AIDS system between food, beverages and other commodities. The technique used exploits the fact that there are only three AIDS-aggregates to explicitly maintain concavity of the expenditure function within a given range of budget shares; it also ensures consistency of the aggregate price index in the AIDS with the parameters of the system. The lower level allocates food via an LES-system for ten categories, with time-dependent commitments. Empirical results look promising.

Keywords: consumer demand, EC model, AIDS-LES, global concavity, nesting


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