TY - JOUR
AU - Bajari,Patrick
AU - Benkard,C. Lanier
TI - Demand Estimation With Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach
JF - National Bureau of Economic Research Technical Working Paper Series
VL - No. 272
PY - 2001
Y2 - July 2001
DO - 10.3386/t0272
UR - http://www.nber.org/papers/t0272
L1 - http://www.nber.org/papers/t0272.pdf
N1 - Author contact info:
Patrick Bajari
University of Washington
331 Savery Hall
UW Economics Box 353330
Seattle, Washington 98195-3330
E-Mail: Bajari@uw.edu
C. Lanier Benkard
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305
Tel: 650 725-2173
E-Mail: lanierb@stanford.edu
AB - We study the identification and estimation of preferences in hedonic discrete choice models of demand for differentiated products. In the hedonic discrete choice model, products are represented as a finite dimensional bundle of characteristics, and consumers maximize utility subject to a budget constraint. Our hedonic model also incorporates product characteristics that are observed by consumers but not by the economist. We demonstrate that, unlike the case where all product characteristics are observed, it is not in general possible to uniquely recover consumer preferences from data on a consumer's choices. However, we provide several sets of assumptions under which preferences can be recovered uniquely, that we think may be satisfied in many applications. Our identification and estimation strategy is a two stage approach in the spirit of Rosen (1974). In the first stage, we show under some weak conditions that price data can be used to nonparametrically recover the unobserved product characteristics and the hedonic pricing function. In the second stage, we show under some weak conditions that if the product space is continuous and the functional form of utility is known, then there exists an inversion between a consumer's choices and her preference parameters. If the product space is discrete, we propose a Gibbs sampling algorithm to simulate the population distribution of consumers' taste coefficients.
ER -