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Exploring the Effects of Aggregation Error in the Estimation of Consumer Demand Elasticities

Author

Listed:
  • Frank T. Denton
  • Dean C. Mountain

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 analyse 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

  • Frank T. Denton & Dean C. Mountain, 2007. "Exploring the Effects of Aggregation Error in the Estimation of Consumer Demand Elasticities," Quantitative Studies in Economics and Population Research Reports 425, McMaster University.
    • Handle: RePEc:mcm:qseprr:425
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    File URL: http://socserv.mcmaster.ca/qsep/p/qsep425.pdf
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    More about this item

    Keywords

    Aggregation error; Consumer demand elasticities; AIDS/QUAIDS models; Income distribution;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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