Discussion paper

DP18606 Aggregation and Closed-Form Results for Nonhomothetic CES Preferences

We provide four novel results for nonhomothetic Constant Elasticity of Substitution preferences (Hanoch, 1975). First, we derive a closed-form representation of the expenditure function of nonhomothetic CES under relatively flexible distributional assumptions of demand and price distribution parameters. Second, we characterize aggregate demand from heterogeneous households in closed-form, assuming that household total expenditures follow an empirically plausible distribution. Third, we leverage these results to study the Euler equation arising from standard intertemporal consumption-saving problems featuring within-period nonhomothetic CES preferences. Finally, we show that nonhomothetic CES expenditure shares arise as the solution of a discrete-choice logit problem.


Bohr, C, M Mestieri and E Yavuz (2023), ‘DP18606 Aggregation and Closed-Form Results for Nonhomothetic CES Preferences‘, CEPR Discussion Paper No. 18606. CEPR Press, Paris & London. https://cepr.org/publications/dp18606