Nonparametric estimation of a nonseparable demand function under the slutsky inequality restriction

Richard Blundell, Joel Horowitz, Matthias Parey

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

We present a method for consistent nonparametric estimation of a demand function with nonseparable unobserved taste heterogeneity subject to the shape restriction implied by the Slutsky inequality. We use the method to estimate gasoline demand in the United States. The results reveal differences in behavior between heavy and moderate gasoline users. They also reveal variation in the responsiveness of demand to plausible changes in prices across the income distribution. We extend our estimation method to permit endogeneity of prices. The empirical results illustrate the improvements in finite-sample performance of a nonparametric estimator from imposing shape restrictions based on economic theory.

Original languageEnglish (US)
Pages (from-to)291-304
Number of pages14
JournalReview of Economics and Statistics
Volume99
Issue number2
DOIs
StatePublished - May 1 2017

Funding

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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