Shadow demands for unobservable goods: an intertemporal incomplete demand approach

Abstract For goods whose quantities are not observed or available, there are no explicit, but shadow, demands for them. To analyze these shadow demands, this paper presents a novel incomplete demand model that allows for intertemporal consumption behavior, as summarized by the Euler equation. This equation is then estimated, using French data (1977–2020), jointly with the demands for observed goods. This allows to identify the parameters characterizing the shadow demands for unobservable goods and to properly measure the welfare effects of price changes. Results indicate that in the absence of available quantity data for some goods, the proposed shadow demand model provides sufficient information to adequately analyze observed consumer behavior.