Discussion Paper Details

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Title: Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets

Author(s): Gregory S. Crawford, Rachel Griffith and Alessandro Iaria

Publication Date: December 2016

Keyword(s): attention, discrete choice demand estimation, endogenous product choice, search, sufficient sets and unobserved choice set heterogeneity

Programme Area(s): Industrial Organization

Abstract: This paper introduces "sufficient sets'' and shows how they can address unobserved choice set heterogeneity. Motivated by economic theory, a sufficient set is a combination of a consumer's observed choices that is a subset of their true but unobserved choice set. We introduce a Sufficient Set logit that "differences out'' consumers' true choice sets, permitting consistent parameter estimation, and show how to use sufficient sets to semi-parametrically estimate preferences and lessen the computational burden of methods that integrate over the distribution of choice sets. We illustrate our ideas using Monte Carlo simulations and by estimating demand for chocolate in the UK.

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Bibliographic Reference

Crawford, G, Griffith, R and Iaria, A. 2016. 'Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets'. London, Centre for Economic Policy Research.