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Exploring the effects of aggregation error in the estimation of consumer demand elasticities

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  • Denton, Frank T.
  • Mountain, Dean C.

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 analyze 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.

Suggested Citation

  • Denton, Frank T. & Mountain, Dean C., 2011. "Exploring the effects of aggregation error in the estimation of consumer demand elasticities," Economic Modelling, Elsevier, vol. 28(4), pages 1747-1755, July.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1747-1755
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    References listed on IDEAS

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    Cited by:

    1. Kijin Kim & Geoffrey J. D. Hewings & Kurt Kratena, 2016. "Household disaggregation and forecasting in a regional econometric input–output model," Letters in Spatial and Resource Sciences, Springer, vol. 9(1), pages 73-91, March.
    2. Frank Denton & Dean Mountain, 2014. "The implications of mean scaling for the calculation of aggregate consumer elasticities," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(3), pages 297-314, September.
    3. Linden, Mikael & Ray, Devdatta, 2017. "Aggregation bias-correcting approach to the health–income relationship: Life expectancy and GDP per capita in 148 countries, 1970–2010," Economic Modelling, Elsevier, vol. 61(C), pages 126-136.

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