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Estimating censored and non homothetic demand systems : the generalized maximum entropy appoach

Author

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  • Fabienne Femenia

    (ESR - Unité de recherche d'Économie et Sociologie Rurales - INRA - Institut National de la Recherche Agronomique)

  • Alexandre Gohin

    (ESR - Unité de recherche d'Économie et Sociologie Rurales - INRA - Institut National de la Recherche Agronomique)

Abstract

The econometric estimation of zero censored demand system faces major difficulties. The virtual price approach pioneered by Lee and Pitt in an econometric framework is theoretically consistent but empirically feasible only for homothetic demand system and even may fail to converge depending on initial conditions. In this paper we propose to expand on this approach by relying on the generalized maximum entropy concept instead of the Maximum Likelihood paradigm. The former is robust to the error distribution while the latter must stick with a normality assumption. Accordingly the econometric specification of censored demand systems with virtual prices is made easier even with non homothetic preferences defined over several goods. Illustrative Monte Carlo sampling results show its relative performance.

Suggested Citation

  • Fabienne Femenia & Alexandre Gohin, 2007. "Estimating censored and non homothetic demand systems : the generalized maximum entropy appoach," Post-Print hal-02814735, HAL.
    • Handle: RePEc:hal:journl:hal-02814735
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-02814735v1
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    Cited by:

    1. James FETZER, 2009. "Partial Equilibrium Modeling of Trade Zeros," EcoMod2009 21500031, EcoMod.

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    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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