Exploring the Effects of Aggregation Error in the Estimation of Consumer Demand Elasticities

Frank T. Denton and Dean C. Mountain

Quantitative Studies in Economics and Population Research Reports from McMaster University

Abstract: Errors introduced by using aggregate data in estimating a consumer demand model have long been a concern. We study the effects of such errors on elasticity estimates derived from AIDS and QUAIDS models. Based on a survey of published articles, a generic parameterization of the income distribution, and the range of Gini coefficients reported for 28 OECD countries, we generate and analyse a large number of “observations” on the differences between elasticities calculated at the aggregate level and those calculated at the micro level. We suggest a procedure for evaluating the likely range of aggregation error when a model is estimated with aggregate data.

Keywords: Aggregation error; Consumer demand elasticities; AIDS/QUAIDS models; Income distribution (search for similar items in EconPapers)
JEL-codes: C43 D12 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-12
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:qseprr:425

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