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Simultaneous Equations Bias in Disaggregated Econometric Models

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  • John Kennan

Abstract

In the theory of competitive markets agents act as if they do not affect prices. By analogy with the language of econometrics, agents may be said to take prices as "exogenously given", which suggests that prices are econometrically exogenous in individual behavioural equations. This involves semantic confusion between different meanings of the word "exogenous". Simultaneity problems cannot generally be dispelled by working with disaggregated data. In particular, nothing is gained by disaggregating the dependent variable in a regression equation if the "micro" and "macro" equations use the same regressors. However, there may be substantial gains from disaggregation of the regressors.

Suggested Citation

  • John Kennan, 1989. "Simultaneous Equations Bias in Disaggregated Econometric Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 151-156.
    • Handle: RePEc:oup:restud:v:56:y:1989:i:1:p:151-156.
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    Cited by:

    1. David Atkin, 2013. "Trade, Tastes, and Nutrition in India," American Economic Review, American Economic Association, vol. 103(5), pages 1629-1663, August.
    2. Michaela Draganska & Dipak Jain, 2004. "A Likelihood Approach to Estimating Market Equilibrium Models," Management Science, INFORMS, vol. 50(5), pages 605-616, May.
    3. Gillingham, Kenneth & Jenn, Alan & Azevedo, Inês M.L., 2015. "Heterogeneity in the response to gasoline prices: Evidence from Pennsylvania and implications for the rebound effect," Energy Economics, Elsevier, vol. 52(S1), pages 41-52.
    4. Aprajit Mahajan, 2009. "Estimating Price Elasticities with Nonlinear Errors in Variables," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 793-805, November.
    5. Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-189, July.
    6. Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
    7. Dunn, Abe, 2016. "Health insurance and the demand for medical care: Instrumental variable estimates using health insurer claims data," Journal of Health Economics, Elsevier, vol. 48(C), pages 74-88.
    8. James B. Davies & Susanna Sandström & Anthony Shorrocks & Edward N. Wolff, 2011. "The Level and Distribution of Global Household Wealth," Economic Journal, Royal Economic Society, vol. 121(551), pages 223-254, March.
    9. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
    10. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random‐Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.

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