Green Energy Labelling - Green Energy and Efficiency: An Economic Perspective - page 150

And the cross price elasticity for good i with respect to the price of good j , 2 ij ,is

given by

2 ij ¼ða lÞs j ð 6 Þ

Finally it is noted that the Slutsky equation requires

s j
s i ¼

w j
w i

ð 7 Þ

ed locally by selecting the values of s appropriately.
If the budget constraint is now differentiated with respect to M, the additivity
condition is obtained as follows:

Which can be satis

X

w i e i ¼ 1 ð 8 Þ

i

s[ 7 ] AIDS demand system,
though that system is not dened in terms of expenditure shares, but rather of
quantity shares. It has the limitation of requiring quantities to be broadly compa-
rable, but the advantage that subgroups of close substitutes are easier to handle, and
one can derive plausible own and cross price elasticities from limited data.
Although the QBDS is easier and less demanding than the AIDS, it also has to
meet an additional condition: the income elasticity for close substitute goods has to
be the same. It is reasonable to expect all the cross price elasticities of close
substitutes to be positive. Thus, one can derive the following conditions from the
homogeneity restriction:
If e i [

This system is similar to Deaton & Muellbauer '

then P
j

e i jj e ij \ 0 for all j i. Therefore at least one of the cross price

≠

elasticities has to be negative, and
If e i \ then P

j

e i jj e ij [ 0 for all j I, and thus, all the cross price elasticities

≠

could be positive.
This condition could be simpli

ed by the fact that information on the composite
good is not required. Having e i \ ed to a [ l

sufces for there to be positive cross price elasticities for all close substitutes. In
sum, this implies that the income elasticity of demand has to be smaller than the
own-price elasticity of demand of one of the substitute goods in absolute value.

e i jj , which can be further simpli

Appendix 2

(Tables A1 , A2 , A3 , A4 , A5 , A6 )