Latent Complementarity in Bundles Models

46 Pages Posted: 23 Oct 2018 Last revised: 19 Feb 2019

See all articles by Roy Allen

Roy Allen

University of Western Ontario - Department of Economics

John Rehbeck

Ohio State University (OSU) - Economics

Date Written: February 14, 2019

Abstract

This paper studies the measurement of latent complementarity in a simple latent utility model with two goods and binary quantities of each good (buy/don't buy). We show that with binary demand shifters, sharp bounds on the fraction of individuals for whom goods are complements/substitutes involve marginal choice probabilities. With rich variation in demand shifters, we show it is also possible to identify the distribution of latent complementarity using only marginal choice probabilities. Together, these results indicate that mean demands are sufficient for measuring complementarity without observing whether goods are chosen together.

Keywords: Bundles, Complementarity, Identification

Suggested Citation

Allen, Roy and Rehbeck, John, Latent Complementarity in Bundles Models (February 14, 2019). Available at SSRN: https://ssrn.com/abstract=3257028 or http://dx.doi.org/10.2139/ssrn.3257028

Roy Allen

University of Western Ontario - Department of Economics ( email )

Social Science Centre, Room 4071
London, Ontario N6A 5C2
Canada

John Rehbeck (Contact Author)

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

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