On Demand Analysis and Dynamics: A Benefit Function Approach

This paper develops an economic and econometric analysis of demand dynamics, with an application to US aggregate data over the period 1948-2010. The model builds on duality and the benefit function, which provide strong linkages with the theory. The research involves the specification and estimation of dynamic price-dependent demands as representations of marginal benefits. The analysis uncovers strong statistical evidence of demand dynamics, especially for food. We find that the marginal benefit of food declines with food consumption and that this effect becomes much stronger in the long run. We also find that, while food and service are always complements, the strength of this complementarity relationship increases sharply in the longer run.