Generalized Random Coefficients With Equivalence Scale Applications

Arthur Lewbel and Krishna Pendakur

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: We propose a generalization of random coefficients models, in which the regression model is an unknown function of a vector of regressors, each of which is multiplied by an unobserved error. We also investigate a more restrictive model which is additive (or additive with interactions) in unknown functions of each regressor multiplied by its error. We show nonparametric identification of these models. In addition to providing a natural generalization of random coefficients, we provide economic motivations for the model based on demand system estimation. In these applications, the random coefficients can be interpreted as random utility parameters that take the form of Engel scales or Barten scales, which in the past were estimated as deterministic preference heterogeneity or household technology parameters. We apply these results to consumer surplus and related welfare calculations.

Keywords: Unobserved heterogeneity; Nonseparable errors; Random utility parameters; Random coefficients; Equivalence scales; Consumer surplus; Welfare calculations (search for similar items in EconPapers)
JEL-codes: C14 C21 D12 D13 (search for similar items in EconPapers)
Pages: 50
Date: 2012-05
New Economics Papers: this item is included in nep-upt
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