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Fast, “Robust†, and Approximately Correct: Estimating Mixed Demand Systems

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  • Salanié, Bernard
  • Wolak, Frank

Abstract

Many econometric models used in applied work integrate over unobserved heterogeneity. We show that a class of these models that includes many random coefficients demand systems can be approximated by a “small-σ†expansion that yields a straightforward 2SLS estimator. We study in detail the models of market shares popular in empirical IO (“macro BLP†). Our estimator is only approximately correct, but it performs very well in practice. It is extremely fast and easy to implement, and it accommodates to misspecifications in the higher moments of the distribution of the random coefficients. At the very least, it provides excellent starting values for more commonly used estimators of these models.

Suggested Citation

  • Salanié, Bernard & Wolak, Frank, 2018. "Fast, “Robust†, and Approximately Correct: Estimating Mixed Demand Systems," CEPR Discussion Papers 13236, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13236
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D10 - Microeconomics - - Household Behavior - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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