Sparse demand systems: corners and complements

Arthur Lewbel and Lars Nesheim

No CWP45/19, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: We propose a demand model where consumers simultaneously choose a few di?erent goods from a large menu of available goods, and choose how much to consume of each good. The model nests multinomial discrete choice and continuous demand systems as special cases. Goods can be substitutes or complements. Random coe?cients are employed to capture the wide variation in the composition of consumption baskets. Non-negativity constraints produce corners that account for di?erent consumers purchasing di?erent numbers of types of goods. We show semiparametric identi?cation of the model. We apply the model to the demand for fruit in the United Kingdom. We estimate the model’s parameters using UK scanner data for 2008 from the Kantar World Panel. Using our parameter estimates, we estimate a matrix of demand elasticities for 27 categories of fruit and analyze a range of tax and policy change scenarios.

Date: 2019-09-23
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (6)

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Working Paper: Sparse demand systems: corners and complements (2019)
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