Measuring Product Diversity
Posted: 19 Mar 1997
Date Written: February 1997
This paper demonstrates the possibility of constructing a measure of product diversity using observed price and quantity data. We do this by positing a utility function, where utility depends on bilateral distance between products. We show how these unobserved parameters can be inferred from price and quantity data. These parameters are then used to construct a diversity measure satisfying the axioms developed by Weitzman for diversity in environmental contexts.
JEL Classification: L15
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