# A Branching AIDS Model for Estimating U.S. Postal Price Elasticities

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## Abstract

In this paper we apply an econometric method based upon the Almost Ideal Demand System (AIDS) originally developed by Deaton and Muellbauer (1980) and extended by Hausman et al. (1994) to estimate a series of complete matrices of price elasticities for U.S. Postal Service (USPS) domestic mail. Our model organizes USPS revenues, volumes and prices as a tree with branches corresponding to increasing disaggregations of U.S. domestic mail by class, by rate category and by shape. The matrices of price elasticities apply to the levels of disaggregation as we proceed up the tree. Our results demonstrate that modern econometric methods are capable of producing complete matrices of postal price elasticities at a level of detail and accuracy that is beyond the capabilities of conventional methods.

## Keywords

Price Elasticity Revenue Share Share Equation Average Revenue Exponential Trend## References

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