EVALUATING THE LINEARIZED ALMOST IDEAL DEMAND SYSTEM

Linearizing the Almost Ideal Demand System (LAIDS) by recourse to the Stone share weighted price index is common practice. Two issues are ad dressed here. First, scrutiny of the errors-in-variables implications of the linearization reveals that, not only is the SUR estimator incon sistent, but a consistent IV estimator cannot be constructed. Second, some alternatives to the Green-Alston elasticities specifically design ed for the LAIDS model are developed, but neither these nor the Green- Alston elasticities are found to have any advantages over the conventi onal elasticity formulae. Some errors in the Green-Alston (1990) paper are corrected. The inconsistency and elasticity issues are documented by a Monte Carlo investigation.