Estimating Price Elasticities with Nonlinear Errors in Variables
AbstractThis paper estimates a price elasticity using a flexible demand specification on survey data where prices are observed with errors and are correlated with household characteristics. The demand function is modeled as a polynomial/trigonometric in the unobserved true prices, and the form of the dependency between the observed prices and household characteristics is modeled parametrically. I identify and estimate the model by adapting the approach of Hausmann et al. (1991) and Schennach (2004). The flexible specifications allow us to observe that price elasticities vary across the price distribution, something missed in previous work using linear demand specifications. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal The Review of Economics and Statistics.
Volume (Year): 91 (2009)
Issue (Month): 4 (November)
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Other versions of this item:
- Aprajit Mahajan, 2009. "Estimating Price Elasticities with Non-Linear Errors in Variables," Discussion Papers, Stanford Institute for Economic Policy Research 08-045, Stanford Institute for Economic Policy Research.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D40 - Microeconomics - - Market Structure and Pricing - - - General
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- Hausman, Jerry A. & Newey, Whitney K. & Ichimura, Hidehiko & Powell, James L., 1991. "Identification and estimation of polynomial errors-in-variables models," Journal of Econometrics, Elsevier, Elsevier, vol. 50(3), pages 273-295, December.
- Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, Elsevier, vol. 36(1-2), pages 7-30.
- Kennan, John, 1989. "Simultaneous Equations Bias in Disaggregated Econometric Models," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(1), pages 151-56, January.
- Susanne M. Schennach, 2004. "Estimation of Nonlinear Models with Measurement Error," Econometrica, Econometric Society, Econometric Society, vol. 72(1), pages 33-75, 01.
- Haerdle,Wolfgang & Stoker,Thomas, 1987. "Investigations smooth multiple regression by the method of average derivatives," Discussion Paper Serie A, University of Bonn, Germany 107, University of Bonn, Germany.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 312-26, June.
- Geert Ridder & Yingyao Hu, 2004. "Estimation of Nonlinear Models with Measurement Error Using Marginal Information," Econometric Society 2004 North American Summer Meetings, Econometric Society 21, Econometric Society.
- Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, Elsevier, vol. 15(2), pages 211-245, February.
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