A nested CES-type utility function and its demand and price-index functions

The nested CES-type utility function is introduced in this paper: it consists of an N-level utility tree of slightly modified CES-type functions. Attractive price- and quantity-indices are developed and an elegant system of demand functions, specified in terms of price-indices, results. In addition, some suggestions are made with respect to the estimation of this system.     

Mathematical utility theory and the representability of demand by continuous homogeneous functions

The resort to utility-theoretical issues will permit us to propose a constructive procedure for deriving a homogeneous of degree one continuous function that gives raise to a primitive demand function under suitably mild conditions. This constitutes the first self-contained and elementary proof of a necessary and sufficient condition for an integrability problem to have a solution by continuous (subjective utility) functions.The work of José C. R. Alcantud has been supported by FEDER and Ministerio de Educación y Ciencia under the Research Project SEJ2005-0304/ECON, and by Consejería de Educación (Junta de Castilla y León) under the Research Project SA098A05. Carlos R. Palmero acknowledges financial support by FEDER and Ministerio de Educación y Ciencia under the Research Project SEJ2005-08709/ECON, and by Consejería de Educación (Junta de Castilla y León) under the Research Project VA017B05.     

Optimal financial investments for non-concave utility functions

We prove a formula for the computation of optimal financial investments in an expected utility framework with arbitrary (not necessarily concave) utility functions. This extends classical results on optimal financial investments for strictly concave utility functions and is of importance particularly for applications of prospect theory where the utility function has a convex-concave shape.     

Expected utility maximization and demand behavior

This paper extends the non-parametric approach to consumer demand analysis to the case of expected utility maximization. We provide necessary and sufficient conditions for a set of price-quantity pairs to be consistent with expected utility maximization, and investigate their relationship to revealed preference conditions. Extensions to incomplete markets and intertemporal resolution of uncertainty are also considered.     

The costs of using Frisch demand functions that are additive in the marginal utility of expenditure

We outline the implicit restrictions involved in using Frisch demand functions that are additive in the marginal utility of expenditure.     

The electric utility demand for energy in the United States

This paper looks at the use of various fossil fuel inputs in the generation of electrical energy via a two step procedure. First, aggregate energy demand is determined and second, corresponding energy fuel shares are examined. This separation suggests that energy is separable and forms a homogeneous aggregate. Finally the question of the stability of the demand for fuel inputs is addressed.     

Earnings functions: Testing for the demand side

To analyze labor market phenomena, one may simultaneously grade workers (by education) and jobs (by level of difficulty and complexity). Human capital theory predicts earnings based on only worker quality. Thurow's version of a segmented labor market theory predicts that only the job level is relevant, and the assignment theory predicts that both variables are relevant. Using three different data sets for The Netherlands, testing demonstrates convincingly the superiority of the assignment theory.     

Estimating money demand functions for South Asian countries

In this paper, we estimate a money demand function for a panel of five South Asian countries. We find that the money demand and its determinants, namely real income, real exchange rate and short-term domestic and foreign interest rates are cointegrated both for individual countries as well as for the panel, and panel long-run elasticities provide robust evidence of statistically significant relationships between money demand and its determinants. Our test for panel Granger causality suggests short-run causality running from all variables, except foreign interest rate, to money demand, and we find evidence that except for Nepal money demand functions are stable.      

Inverting systems of demand functions

This note gives a set of sufficient conditions under which a system of demand functions for “gross substitutes” can be inverted to obtain an equivalent system of inverse demand functions, and vice versa. These conditions also ensure that either system can be inverted to obtain a system of “mixed” demand functions, i.e., a mixture of demand and inverse demand functions. In addition, the resultant functions possess intuitive properties expected of gross substitutes.     

Modeling recreation demand within a random utility framework

This paper develops a single site, single trip random utility model for describing recreation behavior. The model is applied to a 1981 survey of households in the Pennsylvania Monongahela River Basin. Hicksian benefit estimates derived from it are compared with those from a more conventional travel cost model estimated from the same survey.     

A class of multiattribute utility functions

A function u(z) is a utility function if u′(z) > 0. It is called risk averse if we also have u′′(z) < 0. Some authors, however, require that u ⁽ⁱ⁾(z) > 0 if i is odd and u ⁽ⁱ⁾(z) < 0 if i is even. The notion of a multiattribute utility function can be defined by requiring that it is increasing in each variable and concave as an s-variate function. A stronger condition, similar to the one in case of a univariate utility function, requires that, in addition, all partial derivatives of total order m should be positive if m is odd and negative if m is even. In this paper, we present a class of functions in analytic form such that each of them satisfies this stronger condition. We also give sharp lower and upper bounds for E[u(X ₁,... , X _s )] under moment information with respect to the joint probability distribution of the random variables X ₁,... , X _s assumed to be discrete and representing wealths. Partially supported by OTKA grants F-046309 and T-047340 in Hungary.     

Increasing risk and nonseparable utility functions

Assuming that the intertemporal utility function is separable, conditions are established which determine when an increase in risk with respect to the rate of interest is likely to increase or decrease savings and the supply of work effort. Without assuming intertemporal separability similar results are derived for the case where present and future consumption of both leisure and commodities are complements. A heuristic interpretation of the results concerning the behavior of the Arrow-Pratt measure of relative risk aversion is provided.     

Habit formation and long-run utility functions

This paper extends the work on habit formation of Pollak [Habit formation and dynamic demand functions. J. Polit. Econ. (1970)] and provides a critical counterexample to a conjecture of von Weizsäcker [Notes on endogenous changes of tastes, J. Econ. Theory (1971)] concerning the existence of a “long-run utility function.“ A linear specification of habit formation is applied to a general system of demand functions with linear Engel curves. It is shown that there exists a utility function which rationalizes the long-run demand functions if and only if they are the steady-state solution to a system of short-run demand functions generated by an additive utility function.     

Nominal vs real adjustment in demand for money functions

Recently, Fair (1987) has addressd an interesting question in the areas of demand for money, namely, whether the adjustment of actual to desired demand for money is in nominal or real terms. His conclusion, based on time-seies analysis for twenty-seven countries, including a few developing countries, was that the evidence was overwhelmingly in favour of the nominal hypothesis.

The aim of this paper is to address the same issue for eleven Asian countries. In the process, a reformulation of the test procedure used by Fair is suggested. In addition, the question is also examined within the framework of the error correction model. The models are also tested for structural stability.

The scheme of the paper is as follows. The models and the tests are specified in Section I. The data and the estimation issues are dealt with in Section II. Section III presents the results. The paper is concluded with a brief summary of the major findings.