Journal of Agricultural and Resource Economics (Dec 1994)

Two-Stage Utility Maximization and Import Demand Systems Revisited: Limitations and an Alternative

  • George C. Davis,
  • Kimberly L. Jensen

DOI
https://doi.org/10.22004/ag.econ.30757
Journal volume & issue
Vol. 19, no. 2
pp. 409 – 424

Abstract

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Two-stage utility maximization theory has been widely used in the literature to estimate import demand for agricultural commodities that are often inputs. This article examines the overlooked conceptual and empirical limitations of applying two-stage utility maximization theory to model the demand for imported commodities that are inputs. A discussion is presented about how the underutilized theory of two-stage profit maximization overcomes these limitations. Also discussed are the conditions under which errors illustration of the two-stage profit maximization procedure is provided.

Keywords