Calibration of Incomplete Demand Systems in Quantitative Analysis, The
John C. Beghin, Jean-Christophe Bureau, Sophie Drogué
January 2003 [03-WP 324]
Beghin, J.C., J.C. Bureau, and S. Drogué. 2003. "Calibration of Incomplete Demand Systems in Quantitative Analysis, The." Working paper 03-WP 324. Center for Agricultural and Rural Development, Iowa State University.
We introduce an easily implemented and flexible calibration technique for partial demand systems, combining recent developments in incomplete demand systems and a set of restrictions conditioned on the available elasticity estimates. The technique accommodates various degrees of knowledge on cross-price elasticities, satisfies curvature restrictions, and allows the recovery of an exact welfare measure for policy analysis. The technique is illustrated with a partial demand system for food consumption in Korea for different states of knowledge on cross-price effects. The consumer welfare impact of food and agricultural trade liberalization is measured.
Keywords: calibration, exact welfare measure, incomplete demand systems, policy analysis.