Estimation of Censored Demand Equations from Large Cross-Section Data

Posted: 28 May 2001

See all articles by Federico Perali

Federico Perali

University of Verona - Department of Economics

Jean-Paul Chavas

University of Wisconsin

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Abstract

The article develops an alternative econometric methodology to estimate a system of censored demand equations using a large cross-section data from Colombian urban households. The approach preserves the behavioral information expressed by zero expenditures and conforms with the requirements imposed by consumer theory in a way consistent with the random utility hypothesis. We motivate the choice of the Tobit model as a statistical representation of consumer behavior and introduce the methodology by specifying the AIDS model modified according to both a translating and scaling demographic transformation. We propose to estimate each demand equation in unrestricted form using the jackknife technique. We then recover the demand parameters imposing the cross-equations restrictions by using minimum distance estimation. The empirical results of the censored demand system for specific households of policy relevance are reported.

Suggested Citation

Perali, Federico and Chavas, Jean-Paul, Estimation of Censored Demand Equations from Large Cross-Section Data. Available at SSRN: https://ssrn.com/abstract=246816

Federico Perali (Contact Author)

University of Verona - Department of Economics ( email )

via dell'Artigliere, 19
I-37129 Verona
Italy

Jean-Paul Chavas

University of Wisconsin ( email )

Taylor Hall
Madison, WI 53706
United States
(608) 261-1944 (Phone)
(608) 262-4376 (Fax)

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