Edited by Larry Dwyer, Alison Gill and Neelu Seetaram
Chapter 8: The Almost Ideal Demand System
8 The almost ideal demand system Sarath Divisekera INTRODUCTION The classic paper by Deaton and Muellbauer (1980a) – one of the top 20 papers which appeared in American Economic Review during the first 100 years of its existence – is an established standard for applied demand analysis (Arrow et al., 2011). The fundamental demand model established by this paper – ‘Almost Ideal Demand System’ or AIDS – has found widespread application in consumer demand analysis. The attraction of AIDS is that it gives an arbitrary first-order approximation to any demand system; it satisfies the axioms of choice (almost) exactly; it aggregates perfectly without invoking the assumption of parallel linear Engel curves; and it has a functional form which is consistent with known household budget data. As within the general economics literature, the AIDS model is the principal established demand system employed by researchers in the tourism field. Beginning from the work of White (1982) – the earliest attempt to model tourism demand based on a system approach to demand modelling – to the most recent study of Wu et al. (2011), the AIDS model has been the basis for modelling and estimation of tourism demands.1 The key contributions include: Coenen and Eekeren (2003), De Mello and Fortuna (2005), De Mello et al. (2002), Divisekera (2007, 2008, 2009a, 2009b, 2010a, 2010b, 2010c), Divisekera and Deegan (2010), Fujii et al. (1985), Han et al. (2006), Li et al. (2004), Lyssiotou (2000), Mangion et al. (2005), O’Hagan and Harrison (1984), Papatheodorou (1999), Sinclair and Syriopoulos (1993), White (1982, 1985)...
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