Identifying Heterogeneity in Economic Choice Models

40 Pages Posted: 21 Jul 2009 Last revised: 7 Aug 2009

See all articles by Jeremy T. Fox

Jeremy T. Fox

University of Michigan

Amit Gandhi

University of Wisconsin - Madison

Date Written: July 2009

Abstract

We show how to nonparametrically identify the distribution that characterizes heterogeneity among agents in a general class of structural choice models. We introduce an axiom that we term separability and prove that separability of a structural model ensures identification. The main strength of separability is that it makes verifying the identification of nonadditive models a tractable task because it is a condition that is stated directly in terms of the choice behavior of agents in the model. We use separability to prove several new results. We prove the identification of the distribution of random functions and marginal effects in a nonadditive regression model. We also identify the distribution of utility functions in the multinomial choice model. Finally, we extend 2SLS to have random functions in both the first and second stages. This instrumental variables strategy applies equally to multinomial choice models with endogeneity.

Suggested Citation

Fox, Jeremy T. and Gandhi, Amit, Identifying Heterogeneity in Economic Choice Models (July 2009). NBER Working Paper No. w15147. Available at SSRN: https://ssrn.com/abstract=1434662

Jeremy T. Fox (Contact Author)

University of Michigan ( email )

611 Tappan St.
Ann Arbor, MI 48104
United States
734 330-2854 (Phone)

Amit Gandhi

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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