The MP1GLOG specification of an indirect utility function allows a parametric representation in terms of expenditure and two unit cost functions. An appropriate specification of these unit cost functions resolves the conflict between the need for flexibility and satisfaction of curvature restrictions by allowing the use of a flexible unit cost function which satisfies curvature conditions for all positive prices. The resulting demand system will then satisfy curvature restrictions over a wide range of prices and expenditures, and hence allow policy conclusions consistent with the restrictions of economic theory.
|Number of pages||10|
|Publication status||Published - Mar 1994|