Flexible Functional Forms and Demand Systems
For many years, econometricians used globally regular functional forms such as the Cobb-Douglas and the Constant Elasticity of Substitution (CES) forms to approximate the generating functions (such as, for example, direct utility, indirect utility, production, and cost functions) of neoclassical microeconomic theory. Such functional forms satisfy everywhere the theoretical regularity conditions for rational neoclassical economic behavior, but do not provide the capability to attain arbitrary elasticities of substitution.
KeywordsDemand System Indirect Utility Budget Share Indirect Utility Function Share Equation
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