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A Framework for Empirical Modelling of Consumer Demand with Latent Quality Attributes

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This paper discusses a particular approach to empirical consumer demand modelling when products are differentiated and the product attributes are unobservable. In contrast to the traditional approach to this problem, see e.g. Epple (1987) and Deaton (1987, 1988), where the product variants are treated as infinitely divisible goods, the present approach assumes that the consumer is making his choice of variant from a set of discrete "packages" of attribute combinations. Subsequently, given the (discrete) choice of variants the corresponding quantities are treated as continuous choices. Thus in this approach the consumer's decision process is formulated as a discrete/continuous choice problem. The empirical analysis is based on microdata from the Sichuan province in China. We show that in this case the estimation methods work well and yield reasonable results.

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  • John K. Dagsvik & Yu Zhu & Rolf Aaberge, 1998. "A Framework for Empirical Modelling of Consumer Demand with Latent Quality Attributes," Discussion Papers 229, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:229
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    2. Deaton, Angus, 1986. "Demand analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 30, pages 1767-1839, Elsevier.
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    8. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
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    1. John K. Dagsvik & Leif Brubakk, 1998. "Price Indexes for Elementary Aggregates Derived from Behavioral Assumptions," Discussion Papers 234, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Consumer demand; Differentiated products; Latent product attributes;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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