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Non-parametric estimation of exact consumer surplus with endogeneity in price

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  • Anne Vanhems

Abstract

This paper analyses a structural microeconomic relation describing the exact consumer surplus in a non-parametric setting with endogenous prices. The exact consumer surplus can be characterized as the solution of a differential equation involving the observed demand function. The strategy put forward in this paper involves two steps: first, estimate the demand function with endogeneity using non-parametric IV, second, plug this estimator into the differential equation to estimate the exact consumer surplus. The rate of convergence for this estimator is derived and is shown to be faster than the rate for the underlying non-parametric IV regression estimator. Solving the differential equation smooths the demand estimator and leads to a faster rate of convergence. The implementation of the methodology is illustrated through a simulation study. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

Suggested Citation

  • Anne Vanhems, 2010. "Non-parametric estimation of exact consumer surplus with endogeneity in price," Econometrics Journal, Royal Economic Society, vol. 13(3), pages 80-98, October.
    • Handle: RePEc:ect:emjrnl:v:13:y:2010:i:3:p:s80-s98
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    Cited by:

    1. Samuele CENTORRINO & Jeffrey S. RACINE, 2017. "Semiparametric Varying Coefficient Models with Endogenous Covariates," Annals of Economics and Statistics, GENES, issue 128, pages 261-295.
    2. Xiaohong Chen & Yin Jia Jeff Qiu, 2016. "Methods for Nonparametric and Semiparametric Regressions with Endogeneity: A Gentle Guide," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 259-290, October.
    3. Stefan Hoderlein & Anne Vanhems, 2018. "Estimating the distribution of welfare effects using quantiles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(1), pages 52-72, January.
    4. Gohar, Abdelaziz A. & Cashman, Adrian, 2016. "A methodology to assess the impact of climate variability and change on water resources, food security and economic welfare," Agricultural Systems, Elsevier, vol. 147(C), pages 51-64.
    5. Stefan Hoderlein & Anne Vanhems, 2011. "Welfare analysis using nonseparable models," CeMMAP working papers CWP01/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. Xiaohong Chen & Timothy Christensen, 2013. "Optimal Sup-norm Rates, Adaptivity and Inference in Nonparametric Instrumental Variables Estimation," Cowles Foundation Discussion Papers 1923R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2015.
    7. Xiaohong Chen & Timothy M. Christensen, 2015. "Optimal sup-norm rates, adaptivity and inference in nonparametric instrumental variables estimation," CeMMAP working papers 32/15, Institute for Fiscal Studies.

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