Fast, “Robustâ€, and Approximately Correct: Estimating Mixed Demand Systems

Salanié, Bernard and Frank Wolak
Authors registered in the RePEc Author Service: Bernard Salanié

No 13236, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Many econometric models used in applied work integrate over unobserved heterogeneity. We show that a class of these models that includes many random coefficients demand systems can be approximated by a “small-σ†expansion that yields a straightforward 2SLS estimator. We study in detail the models of market shares popular in empirical IO (“macro BLP†). Our estimator is only approximately correct, but it performs very well in practice. It is extremely fast and easy to implement, and it accommodates to misspecifications in the higher moments of the distribution of the random coefficients. At the very least, it provides excellent starting values for more commonly used estimators of these models.

Keywords: Industrial organization; Discrete choice; Demand systems (search for similar items in EconPapers)
JEL-codes: C50 C51 C52 D10 D20 D40 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-ecm
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