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Almost Ideal Demand System

The Almost Ideal Demand System (AIDS), introduced by Angus Deaton and John Muellbauer in 1980, is the workhorse flexible demand system in applied microeconomics. It models each good's budget share as a linear function of the logarithms of all prices and of log real total expenditure, derived from a flexible (PIGLOG) cost function. The form is 'almost ideal' because it satisfies the axioms of choice exactly, aggregates consistently over heterogeneous consumers, has a functional form that is a first-order approximation to any demand system, and can be estimated and tested for homogeneity and symmetry with linear regression once a price index is specified.

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Almost Ideal Demand System (AIDS)

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Deaton, A., & Muellbauer, J. (1980). An almost ideal demand system. The American Economic Review, 70(3), 312–326. · URL

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