Exploring the effects of aggregation error in the estimation of consumer demand elasticities

Frank T. Denton and Dean C. Mountain

Economic Modelling, 2011, vol. 28, issue 4, 1747-1755

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 analyze 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)
Date: 2011
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Citations: View citations in EconPapers (5)

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