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Competitive Selection and Market Data: The Mixed-Index Problem

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  • Roger J. Bowden

Abstract

If prices have an allocational role, then in addition to their economic signalling, they may act as a statistical signal for the existence of selection bias in cross-sectional studies with some form of price (wages, rental, yield etc.) as dependent variable. Elements of competitive selection appear in the pricing theory of real or financial assets and in the determination of wage rates, where prices correlate the characteristics of the asset or job with those of the individuals, under the equilibrium allocation. If prices achieve such an allocation, then regressions with price as dependent variable are prima facie "mixed-index" in character, with adverse bias or consistency properties, no matter that the right-hand regressors are apparently exogenous. We set up a paradigm for competitive selection and use the concepts so generated to codify the conditions under which mixed index bias will occur. The problem may be regarded as one of selection bias, but does not necessarily derive from classical simultaneity, and is a problem of data-generation structures rather than sample selection.

Suggested Citation

  • Roger J. Bowden, 1992. "Competitive Selection and Market Data: The Mixed-Index Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 625-633.
    • Handle: RePEc:oup:restud:v:59:y:1992:i:3:p:625-633.
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    File URL: http://hdl.handle.net/10.2307/2297868
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    Cited by:

    1. Paul Dalziel & Ross Cullen & Caroline Saunders, 2002. "Ranking research records of economics departments in New Zealand: Comment," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(1), pages 113-122.
    2. Víctor Iturra & Dusan Paredes, 2014. "Construction of a Spatial Housing Price Index by Estimating an Almost Ideal Demand System," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 105(3), pages 301-314, July.
    3. Dusan Paredes Araya & Victor Iturra Rivera, 2013. "Substitution bias and the construction of a spatial cost of living index," Papers in Regional Science, Wiley Blackwell, vol. 92(1), pages 103-117, March.
    4. Brasington, David M. & Hite, Diane, 2008. "A mixed index approach to identifying hedonic price models," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 271-284, May.
    5. Adam P. Wilson & Norbert L.W. Wilson, 2014. "The economics of quality in the specialty coffee industry: insights from the Cup of Excellence auction programs," Agricultural Economics, International Association of Agricultural Economists, vol. 45(S1), pages 91-105, November.

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