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
Date Written: August 19, 1995
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: Suggested Citation