Abstract
The functional form of consumer allocation models should be able to satisfy theoretical properties derived from the theory of consumer demand. The paper sketches four approaches that meet this condition. Of course, also empirical performance matters. Next to naive goodness-of-fit comparison, non-nested hypothesis testing can be employed. The latter technique is applied to a comparison of four versions of differential demand systems: the Rotterdam system, a version of the Almost Ideal Demand (AID) system, the CBS system and the NBR system. These systems are artificially nested in a more general model using scalar weights in contrast to Barten and McAleer (1991) who use matrix weights for this purpose. Annual data over the period 1921–1981 for The Netherlands for four major groups of consumer expenditure have been used for the empirical application. The CBS system dominates the others.
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The author is indebted to Leon Bettendorf for his assistance in setting up the data base and wishes to thank the participants of the XVIIth International Conference on Problems of Building and Estimation of Large Econometric Models, Jachranka, Poland, December 1990, and several anonymous referees for their constructive criticism on earlier drafts of the paper.
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Barten, A.P. Consumer allocation models: Choice of functional form. Empirical Economics 18, 129–158 (1993). https://doi.org/10.1007/BF01238883
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DOI: https://doi.org/10.1007/BF01238883