2
Advanced by Lau, Lin, and Yotopoulos, and Parks and Barten, stipulates
embedding these variables, either continuous or discrete, into the direct
or indirect utility function.
Each a
i
, i = 1, …, r reflects one dimension of the r household characteristics.
The demand functions which arise then depend on the vector of
socioeconomic and demographic factors, (a
1
, …, a
r
). In short, these
researchers specify a complete utility maximization model for the
consumption behavior of households which takes into account the
effects of differential composition of the households in a general way.
(2) Dynamic Complete Demand System
--Use of a state adjustment model in which quantities purchased depend
on existing stocks of either physical stocks of goods or psychological
stocks of habits
--Use a dynamic utility function (Phlips)
--Cast the problem into a control theory framework in which the
consumer is attempting to maximize a discounted utility function subject
to wealth and stocks constraints.
Application of state adjustment model –Green, Hassan, Johnson; Houthakker,
Taylor
)
,...,
,
,
,...,
(
OR
)
,...,
,
,...,
(
1
1
1
1
r
n
r
n
a
a
y
p
p
a
a
q
q
U
U
Ψ
=
Ψ
=