Non-parametric estimation of exact consumer surplus with endogeneity in price

Anne Vanhems

Econometrics Journal, 2010, vol. 13, issue 3, pages S80-S98

Abstract: This paper analyses a structural microeconomic relation describing the exact consumer surplus in a non-parametric setting with endogenous prices. The exact consumer surplus can be characterized as the solution of a differential equation involving the observed demand function. The strategy put forward in this paper involves two steps: first, estimate the demand function with endogeneity using non-parametric IV, second, plug this estimator into the differential equation to estimate the exact consumer surplus. The rate of convergence for this estimator is derived and is shown to be faster than the rate for the underlying non-parametric IV regression estimator. Solving the differential equation smooths the demand estimator and leads to a faster rate of convergence. The implementation of the methodology is illustrated through a simulation study. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

Date: 2010
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