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The Analysis of Consumer Demand in the United Kingdom, 1900-1970

Angus S. Deaton

Abstract

This paper considers the application of various models of consumer demand to United Kingdom time series from 1900 to 1970. As well as testing the various forms of the "Rotterdam" model, reparametrization of that system is carried out in order to test the linear expenditure system and the direct addilog system on an exactly comparable basis. A further variant of the Rotterdam model is also introduced; this is intermediate between symmetry and additivity and allows for the calculation of all cross price elasticities from information on own price and income elasticities alone. The results of testing these models on a nine commodity model using maximum likelihood estimation are presented and discussed. Unlike most previous work, and in spite of some anomalous results, the United Kingdom experience seems broadly consistent with neoclassical demand theory. However, all restrictions more stringent than those directly implied by the theory are rejected, though it is maintained that these may still be of considerable practical significance in particular instances.