The Department of Economics Applied Microeconomics Seminar Series and Econometrics Seminar Series present

“Estimation of Random Coefficients Logit Demand Models with Interactive Fixed Effects”
with Matthew Shum, California Institute of Technology

May 10, 2011
3:30-5:00 p.m.
Social Science Plaza B, Room 3266

Shum extends the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete choice demand model, which underlies much recent empirical work in IO. He adds interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. He proposes a two step least squares-minimum distance (LS-MD) procedure to calculate the estimator. His estimator is easy to compute, and Monte Carlo simulations show that it performs well. He considers an empirical application to US automobile demand.

For further information, please contact Gloria Simpson,


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