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Global restrictions on the parameters of the CDES indirect utility function

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Abstract

This paper extends the analytical and empirical application of the basic indirect utility function of Houthakker–Hanoch—called the CDES specification (constant differences of elasticities of substitution). The non-homothetic CDES preferences are the natural parametric extension on the global domain of the homothetic CES preferences with many commodities, and CDES can conveniently be used in specifying CGE multisector models with a demand side satisfying observable Engel curve patterns. Moreover, all Marshallian own-price elasticities are no longer restricted to exceed one, and positive and negative cross-price effects are allowed for in empirical demand analyses. Explicit calculations of the Allen elasticities of substitution are instrumental in demonstrating the economic implications of the parameters of indirect utility functions with global regularity properties and flexibility of the derived demand systems.

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Authors and Affiliations

  1. Department of Environmental and Business Economics, University of Southern Denmark, Niels Bohrs Vej 9, 6700, Esbjerg, Denmark

    Bjarne S. Jensen

  2. Econometric Institute, Erasmus University Rotterdam, P. O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    Paul de Boer

  3. TrianGle, Universite de Lyon-2, Lyon, France

    Jan van Daal

  4. Department of Business and Economics, University of Southern Denmark, Campusvej 55, 5230, Odense, Denmark

    Peter S. Jensen

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  1. Bjarne S. Jensen
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  2. Paul de Boer
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  4. Peter S. Jensen
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Correspondence to Bjarne S. Jensen.

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Jensen, B.S., de Boer, P., van Daal, J. et al. Global restrictions on the parameters of the CDES indirect utility function. J Econ 102, 217–235 (2011). https://doi.org/10.1007/s00712-010-0180-x

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