COHERENCY AND REGULARITY OF DEMAND SYSTEMS WITH EQUALITY AND INEQUALITY CONSTRAINTS

In neoclassical structural models dealing with rationing, comer soluti ons, or nonlinear budget constraints, utility theory is more crucial t han in traditional demand systems. If in these models negativity of th e Slutsky matrix is violated, the models will in general not be cohere nt, in the sense that endogenous variables are not unambiguously deter mined. We show that not imposing coherency may yield inconsistent esti mators. A general framework is sketched which allows for the analysis of the relation between coherency, regularity of preferences, and the stochastic specification of the model. We discuss sufficient condition s for regularity which can be imposed in estimation.