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Estimation of a Heterogeneous Demand Function with Berkson Errors

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  • Richard Blundell
  • Joel Horowitz
  • Matthias Parey

Abstract

Berkson errors are commonplace in empirical microeconomics. In consumer demand, this form of measurement error occurs when the price an individual pays is measured by the (weighted) average price paid by individuals in a group (e.g., a county) rather than the true transaction price. We show the importance of Berkson errors for demand estimation with nonseparable unobserved heterogeneity. We develop a consistent estimator using external information on the true price distribution. Examining gasoline demand in the United States, we document substantial within-market price variability. Accounting for Berkson errors is quantitatively important. Imposing the Slutsky shape constraint reduces sensitivity to Berkson errors.

Suggested Citation

  • Richard Blundell & Joel Horowitz & Matthias Parey, 2022. "Estimation of a Heterogeneous Demand Function with Berkson Errors," The Review of Economics and Statistics, MIT Press, vol. 104(5), pages 877-889, December.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:5:p:877-889
    DOI: 10.1162/rest_a_01018
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    Cited by:

    1. Thomas F. Crossley & Peter Levell & Stavros Poupakis, 2022. "Regression with an imputed dependent variable," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(7), pages 1277-1294, November.
    2. Yingheng Zhang & Haojie Li & Gang Ren, 2025. "Data-driven exploration of heterogeneous gasoline price elasticities using generalized random forests," Transportation, Springer, vol. 52(1), pages 215-237, February.
    3. Pierre Dubois & Rachel Griffith & Martin O'Connell, 2020. "How Well Targeted Are Soda Taxes?," American Economic Review, American Economic Association, vol. 110(11), pages 3661-3704, November.

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