Welfare Estimation Using Aggregate and Individual-Observation Models: A Comparison Using Monte Carlo

American Journal of Agricultural Economics, Vol. 77, No. 3 (Aug., 1995), pp. 620-630

Posted: 20 Feb 2016

See all articles by Daniel Hellerstein

Daniel Hellerstein

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS), Resource and Rural Economics Division

Date Written: August 19, 1995

Abstract

Due to the weak behavioral foundations of aggregate demand models, zonal travel cost models have been largely abandoned in favor of models based on individual observations. However, sample selection difficulties in individual-observation models often require the use of distribution-sensitive limited-dependent variables estimators. In this paper I use Monte-Carlo simulations to investigate whether the bias from aggregation is worse than possible bias from these narrowly specified estimators. Somewhat surprisingly, the results indicate that zonal models often outperform the individual-observation models, especially when using an aggregate model that incorporates intrazonal variance of the explanatory variables.

Keywords: aggregation bias, individual-observation models, zonal model

JEL Classification: Q26, C43, C29

Suggested Citation

Hellerstein, Daniel, Welfare Estimation Using Aggregate and Individual-Observation Models: A Comparison Using Monte Carlo (August 19, 1995). American Journal of Agricultural Economics, Vol. 77, No. 3 (Aug., 1995), pp. 620-630. Available at SSRN: https://ssrn.com/abstract=2735128

Daniel Hellerstein (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS), Resource and Rural Economics Division ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-694-5613 (Phone)
202-694-5756 (Fax)

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