What question did this study set out to answer?

This research aims to provide accurate formulas for calculating elasticities in LA/AIDS models, addressing prior computational inaccuracies.

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May 1, 1990

Elasticities in AIDS Models

Key Points

This research aims to provide accurate formulas for calculating elasticities in LA/AIDS models, addressing prior computational inaccuracies.
Analyzed various approaches for estimating demand elasticities in LA/AIDS models.
Developed and presented correct formulas for calculating elasticities in the LA/AIDS framework.
Illustrated potential errors arising from the application of incorrect formulas.
Demonstrated that previously used approaches for estimating LA/AIDS elasticities are theoretically incorrect.
Provided new formulas that yield more accurate elasticity estimates in LA/AIDS models.

Abstract

Abstract In the literature, a variety of approaches have been used to calculate demand elasticities in almost ideal demand system (AIDS) models of demand. It is common to estimate the linear approximate almost ideal demand system (LA/AIDS) instead of the AIDS. When the LA/AIDS is estimated, all of the previously reported approaches to compute elasticities are theoretically incorrect. This paper presents correct formulas for LA/AIDS elasticities and illustrates the potential errors from using incorrect computing formulas.

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