Estimation of a Censored AIDS Model: A Simulated Amemiya-Tobin Approach
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Kuhn-Tucker approach and its dual have been proposed to the demand system
estimation when there are non-negativity bindings. However, empirical researchers have
been struggling two decades in applying this method into practice due to: (1) the
difficulty in derivation of a coherent econometric model, and (2) the cumbersome
evaluation of high order probability integrals needed in parameter estimation. In this
paper, we avoid the above two issues by using the Amemiya-Tobin demand system
approach and the simulation procedure to evaluate the probability integrals. An AIDS
model is estimated and the elasticities are obtained that are impossible to achieve when
using Kuhn-Tucker approach. The model is applied to an analysis of Canadian
household food demand.