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Exploring the effects of aggregation error in the estimation of consumer demand elasticities

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  • Denton, Frank T.
  • Mountain, Dean C.
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    Abstract

    Errors introduced by using aggregate data in estimating a consumer demand model have long been a concern. We study the effects of such errors on elasticity estimates derived from AIDS and QUAIDS models. Based on a survey of published articles, a generic parameterization of the income distribution, and the range of Gini coefficients reported for 28 OECD countries, we generate and analyze a large number of "observations" on the differences between elasticities calculated at the aggregate level and those calculated at the micro level. We suggest a procedure for evaluating the likely range of aggregation error when a model is estimated with aggregate data.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 4 (July)
    Pages: 1747-1755

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1747-1755

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Aggregation error Consumer demand elasticities AIDS/QUAIDS models Income distribution;

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