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A Framework for Empirical Modelling of Consumer Demand with Latent Quality Attributes

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Author Info

  • John K. Dagsvik
  • Yu Zhu
  • Rolf Aaberge

    ()
    (Statistics Norway)

Abstract

This paper discusses a particular approach to empirical consumer demand modelling when products are differentiated and the product attributes are unobservable. In contrast to the traditional approach to this problem, see e.g. Epple (1987) and Deaton (1987, 1988), where the product variants are treated as infinitely divisible goods, the present approach assumes that the consumer is making his choice of variant from a set of discrete "packages" of attribute combinations. Subsequently, given the (discrete) choice of variants the corresponding quantities are treated as continuous choices. Thus in this approach the consumer's decision process is formulated as a discrete/continuous choice problem. The empirical analysis is based on microdata from the Sichuan province in China. We show that in this case the estimation methods work well and yield reasonable results.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 229.

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Date of creation: Sep 1998
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Handle: RePEc:ssb:dispap:229

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Related research

Keywords: Consumer demand; Differentiated products; Latent product attributes;

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References

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  1. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  2. Deaton, A., 1988. "Quality, Quantity, And Spatial Variation Of Price," Papers 30, World Bank - Living Standards Measurement.
  3. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
  4. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839 Elsevier.
  5. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  6. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
  7. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-57, Sept.-Nov.
  8. Bartik, Timothy J, 1987. "The Estimation of Demand Parameters in Hedonic Price Models," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 81-88, February.
  9. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  10. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
  11. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
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Cited by:
  1. John K. Dagsvik & Leif Brubakk, 1998. "Price Indexes for Elementary Aggregates Derived from Behavioral Assumptions," Discussion Papers 234, Research Department of Statistics Norway.

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