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Estimation of a Heterogeneous Demand Function with Berkson Errors

Blundell, R; (2020) Estimation of a Heterogeneous Demand Function with Berkson Errors. Review of Economics and Statistics 10.1162/rest_a_01018. (In press). Green open access

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Abstract

Berkson errors are commonplace in empirical microeconomics. In consumer demand this form of measurement error occurs when the price an individual pays is measured by the (weighted) average price paid by individuals in a group (e.g., a county), rather than the true transaction price. We show the importance of Berkson errors for demand estimation with nonseparable unobserved heterogeneity. We develop a consistent estimator using external information on the true price distribution. Examining gasoline demand in the U.S., we document substantial within-market price variability. Accounting for Berkson errors is quantitatively important. Imposing the Slutsky shape constraint reduces sensitivity to Berkson errors.

Type: Article
Title: Estimation of a Heterogeneous Demand Function with Berkson Errors
Open access status: An open access version is available from UCL Discovery
DOI: 10.1162/rest_a_01018
Publisher version: https://doi.org/10.1162/rest_a_01018
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
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/10113004
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