Conditional and unconditional food demand elasticities in a dynamic multistage demand system

This paper estimates conditional and unconditional demand elasticities in a three stage analysis of consumer demand for food and non-food items in Greece. A dynamic version of the AIDS model is specified and estimated, and full system misspecification tests applied. Correction formulas for price and expenditure elasticities are used to calculate unconditional elasticities from conditional demand sub-systems. All food items rank as price inelastic. Deviations between the calculated conditional and unconditional price and expenditure elasticities are found to be significant, demonstrating the importance of correcting conditional elasticities before they can be used for policy purposes or welfare analyses.