Estimating Price Elasticities with Non-Linear Errors in Variables

Aprajit Mahajan

No 08-045, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper estimates a price elasticity using a flexible demand specification on survey data where prices are observed with error are correlated with household characteristics. The demand function is modelled as being a polynomial (and more generally also including trigonometric terms) in the unobserved true prices and the form of the dependency between the observed (mismeasured) prices and household characteristics is modelled parametrically. I identify and estimate the model by adapting the approach of Hausman, Newey, Ichimura, and Powell (1991) and Schennach (2004). The exible specifications allow us to observe that price elasticities vary across the price distribution, something missed in previous work using linear demand specifications.

Keywords: price; elasticities (search for similar items in EconPapers)
JEL-codes: D12 D40 (search for similar items in EconPapers)
Date: 2009-08
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Journal Article: Estimating Price Elasticities with Nonlinear Errors in Variables (2009)
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