Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119771
Authors: 
Denton, Frank T.
Mountain, Dean C.
Year of Publication: 
2015
Series/Report no.: 
QSEP Research Report, McMaster University 457
Abstract: 
Policy analysis frequently requires estimates of aggregate (or mean) consumer elasticities. However, estimates are often made incorrectly, based on elasticity calculations at mean income. We provide in this paper an overall integrated analytical framework that encompasses these biases and others. We then use empirically derived parameter estimates to simulate and quantify the full range of biases. We do that for alternative income distributions and four different demand models. The biases can be quite large; they generally grow as the degree of income inequality rises, the underlying expenditure elasticity differs from one, and the rank of the model increases.
Subjects: 
aggregate consumer elasticities
aggregation bias
consumer demand
income inequality
income distribution
model rank
JEL: 
D11
C43
Document Type: 
Working Paper

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