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Exploring the Effects of Aggregation Error in the Estimation of Consumer Demand Elasticities

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Author Info
Frank T. Denton
Dean C. Mountain
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 analyse 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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File URL: http://socserv.mcmaster.ca/qsep/p/qsep425.pdf
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Publisher Info
Paper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 425.

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Length: 38 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:mcm:qseprr:425

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

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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This page was last updated on 2009-12-16.

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