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A Branching AIDS Model for Estimating U.S. Postal Price Elasticities

In: Postal and Delivery Innovation in the Digital Economy

Author

Listed:
  • Lyudmila Y. Bzhilyanskaya

    (U.S. Postal Regulatory Commission (PRC))

  • Margaret M. Cigno

    (U.S. Postal Regulatory Commission (PRC))

  • Edward S. Pearsall

Abstract

In this paper we apply an econometric method based upon the Almost Ideal Demand System (AIDS) originally developed by Deaton and Muellbauer (1980) and extended by Hausman et al. (1994) to estimate a series of complete matrices of price elasticities for U.S. Postal Service (USPS) domestic mail. Our model organizes USPS revenues, volumes and prices as a tree with branches corresponding to increasing disaggregations of U.S. domestic mail by class, by rate category and by shape. The matrices of price elasticities apply to the levels of disaggregation as we proceed up the tree. Our results demonstrate that modern econometric methods are capable of producing complete matrices of postal price elasticities at a level of detail and accuracy that is beyond the capabilities of conventional methods.

Suggested Citation

  • Lyudmila Y. Bzhilyanskaya & Margaret M. Cigno & Edward S. Pearsall, 2015. "A Branching AIDS Model for Estimating U.S. Postal Price Elasticities," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Timothy J. Brennan (ed.), Postal and Delivery Innovation in the Digital Economy, edition 127, pages 91-113, Springer.
    • Handle: RePEc:spr:topchp:978-3-319-12874-0_8
    DOI: 10.1007/978-3-319-12874-0_8
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