Econometrics and Applied Micro Seminar

Joint with Krishna Pendakur

Abstract

We model unobserved preference heterogeneity as random Barten scales in utility functions. These Barten scales appear as random coefficients in nonlinear demand equations. We prove a new identification theorem showing nonparametric identification of the joint distribution of random coefficients in general nonlinear and additive models. This differs from almost all existing random coefficients theorems by not imposing a linear index structure for the regressors. Using Canadian data, we compare estimated energy demand functions with and without random Barten scales. We find that unobserved preference heterogeneity substantially affects the estimated consumer-surplus costs of an energy tax.