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The impact of imposing local curvature and increasing the number of goods on elasticity estimates

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  • Fleissig, Adrian R.
  • Swofford, James L.

Abstract

We estimate unrestricted and local curvature restricted normalized quadratic specifications. Monte Carlo simulated data with known true inelastic and elastic elasticities are used with and without global regularity imposed. With both specifications we find violations of regularity conditions. Both specifications accurately estimate inelastic elasticities. Estimates from the models become increasingly imprecise for more elastic elasticities implying policy makers should be concerned that imposing local curvature may cause additional monotonicity violations, biased elasticity estimates, and outliers. Adding goods increases the number of outliers and regularity violations. Studies imposing local curvature that reduced 100 percent curvature violations to zero remain puzzling.

Suggested Citation

  • Fleissig, Adrian R. & Swofford, James L., 2026. "The impact of imposing local curvature and increasing the number of goods on elasticity estimates," Economic Modelling, Elsevier, vol. 164(C).
    • Handle: RePEc:eee:ecmode:v:164:y:2026:i:c:s0264999326003019
    DOI: 10.1016/j.econmod.2026.107772
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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