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From dense grids to valid inference: Accounting for regularization bias in nonparametric random coefficient models

Author

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  • Lingwei Kong
  • Maximilian Osterhaus
  • Michael Pen

Abstract

This paper develops an inference procedure for average functionals of random-coefficient distributions, such as mean willingness-to-pay and average elasticities, when the distribution is estimated nonparametrically using the penalized fixed-grid estimator of Heiss, Hetzenecker, and Osterhaus (2022). We establish asymptotic normality of the corresponding penalized plug-in estimator centered at the functional evaluated at the penalized pseudo-true value and propose a confidence interval that accounts for the regularization bias. Our method applies to a broad class of linear and nonlinear functionals and allows researchers to use dense grids to reduce approximation bias while maintaining valid inference. Monte Carlo simulations show that the proposed intervals achieve coverage close to the nominal level while remaining informative in finite samples. An empirical application to travel mode demand illustrates that flexible nonparametric specifications can yield economically meaningful differences relative to standard parametric models.

Suggested Citation

  • Lingwei Kong & Maximilian Osterhaus & Michael Pen, 2026. "From dense grids to valid inference: Accounting for regularization bias in nonparametric random coefficient models," Papers 2607.25416, arXiv.org.
  • Handle: RePEc:arx:papers:2607.25416
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    File URL: https://arxiv.org/pdf/2607.25416
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