Discussion paper

DP12210 Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems

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 sole exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES.

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Citation

Matsuyama, K (2017), ‘DP12210 Beyond CES: Three Alternative Classes of Flexible Homothetic Demand Systems‘, CEPR Discussion Paper No. 12210. CEPR Press, Paris & London. https://cepr.org/publications/dp12210