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Sparse demand systems: corners and complements

Lewbel, A; Nesheim, L; (2019) Sparse demand systems: corners and complements. (Cemmap Working Paper 45/19). Institute for Fiscal Studies: London, UK. Green open access

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Abstract

We propose a demand model where consumers simultaneously choose a few different goods from a large menu of available goods, and choose how much to consume of each good. The model nests multinomial discrete choice and continuous demand systems as special cases. Goods can be substitutes or complements. Random coefficients are employed to capture the wide variation in the composition of consumption baskets. Non-negativity constraints produce corners that account for different consumers purchasing different numbers of types of goods. We show semiparametric identification of the model. We apply the model to the demand for fruit in the United Kingdom. We estimate the model’s parameters using UK scanner data for 2008 from the Kantar World Panel. Using our parameter estimates, we estimate a matrix of demand elasticities for 27 categories of fruit and analyze a range of tax and policy change scenarios.

Type: Working / discussion paper
Title: Sparse demand systems: corners and complements
Open access status: An open access version is available from UCL Discovery
DOI: 10.1920/wp.cem.2019.4519
Publisher version: https://doi.org/10.1920/wp.cem.2019.4519
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: sparse demand, discrete choice, continuous choice, fruit, Tobit model, scanner data, complements
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10092128
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