Differential Demand Systems: A Further Look at Barten's Synthesis‪.‬

1. Introduction Theoretically consistent, complete systems of consumer demand equations (demand systems, for short) give the quantity demanded of each commodity as a function of total expenditure, the prices of all commodities, and other variables that affect demand. Providing expenditure elasticities, own- and cross-price elasticities, and other effects of policy interest, demand systems have been extensively used in econometric analysis of consumer behavior ever since the introduction of the pioneering linear expenditure system (LES) of Stone (1954). The literature shows that demand systems cover a wide range of applications from the aggregate to the disaggregate level. Some recent examples are Nicol (1994), Pashardes (1995), and Phipps (1998) in demographic economics; West and Williams (2004) in environmental economics; Cockx and Brasseur (2003) in health economics; Wolak (1996) and Capps, Church, and Love (2003) in industrial organization; Okamura (1996), Hill (2000), and Irwin (2003) in international economics; Lewbel (2003) and Escario and Molina (2004) in law and economics; Fleissig and Swofford (1996) and Fleissig and Serletis (2002) in monetary economics; Borge and Rattso (1995) and Nichele and Robin (1995) in public economics; and Cheshire and Sheppard (2002) in urban economics. It is noteworthy that demand systems have often been applied, especially by agricultural economists, to estimate the demand for different food products. (1) This is partly because demand systems are based on static utility maximization, which is not suitable for durable commodities, and food is considered the most typical nondurable commodity group. (2)