DEMAND FOR MEAT AND FISH PRODUCTS IN KOREA

The AIDS developed by Deaton and Muellbauer is specified as

n

(3)             Wi = α_i + ∑ Yij log Pj + β_ilog( E / P ),         i = 1,2,..., n,

j=1

where w_i is the budget share of the i^th good, E is the total expenditure on the group of goods,
and logP is the price index for the group defined as

₁nn

(4)           log P=a_i+b_ilog p_i+⅛∑∑ cjlog p_i log p_j.

2 i=1 j=1

This price index makes the system nonlinear. To make the model linear in parameters,

Deaton and Muellbauer suggested using Stone’s price index defined as

n

(5)             logP*= ∑ w_i,tlogp_i,t.

i=1

The model which uses Stone’s price index is the Linear Approximate AIDS (LA/AIDS)
as follows

n

(6)             ^wi = ^αi ⁺ ∑ Yij log Pj ^{+ β}log( ^e / P *),        ⁱ = ^1,2^,...,ⁿ.

j=1

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