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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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    Cited by:

    1. Frank T. Denton & Dean C. Mountain, 2011. "Aggregation and Other Biases in the Calculation of Consumer Elasticities for Models of Arbitrary Rank," Quantitative Studies in Economics and Population Research Reports 447, McMaster University.
    2. Laura Cornelsen & Rosemary Green & Rachel Turner & Alan D. Dangour & Bhavani Shankar & Mario Mazzocchi & Richard D. Smith, 2015. "What Happens to Patterns of Food Consumption when Food Prices Change? Evidence from A Systematic Review and Meta‐Analysis of Food Price Elasticities Globally," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1548-1559, December.
    3. Frank Denton & Dean Mountain, 2014. "The implications of mean scaling for the calculation of aggregate consumer elasticities," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(3), pages 297-314, September.
    4. Linden, Mikael & Ray, Devdatta, 2017. "Aggregation bias-correcting approach to the health–income relationship: Life expectancy and GDP per capita in 148 countries, 1970–2010," Economic Modelling, Elsevier, vol. 61(C), pages 126-136.
    5. Kijin Kim & Kurt Kratena & Geoffrey J.D. Hewings, 2015. "The Extended Econometric Input-Output Model With Heterogeneous Household Demand System," Economic Systems Research, Taylor & Francis Journals, vol. 27(2), pages 257-285, June.

    More about this item

    Keywords

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    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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