Improving the Performance of Random Coefficients Demand Models: the Role of Optimal Instruments

Frank Verboven and Mathias Reynaert

No 9026, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We shed new light on the performance of Berry, Levinsohn and Pakes' (1995) GMM estimator of the aggregate random coefficient logit model. Based on an extensive Monte Carlo study, we show that the use of Chamberlain's (1987) optimal instruments overcomes most of the problems that have recently been documented with standard, non-optimal instruments. Optimal instruments reduce small sample bias, but prove even more powerful in increasing the estimator's efficiency and stability. Other recent methodological advances (MPEC, polynomial-based integration of the market shares) greatly improve computational speed, but they are only successful in terms of bias and efficiency when combined with optimal instruments.

Keywords: Optimal instruments; Random coefficients demand model (search for similar items in EconPapers)
JEL-codes: C36 L00 (search for similar items in EconPapers)
Date: 2012-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP9026 (application/pdf)

Related works:
Journal Article: Improving the performance of random coefficients demand models: The role of optimal instruments (2014)
Working Paper: Improving the performance of random coefficients demand models: The role of optimal instruments (2012)
Working Paper: Improving the performance of random coefficients demand models: the role of optimal instruments (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9026

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9026

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().