Working Paper: NBER ID: w9452
Authors: Amil Petrin; Kenneth Train
Abstract: We describe two methods for correcting an omitted variables problem in discrete choice models: a fixed effects approach and a control function approach. The control function approach is easier to implement and applicable in situations for which the fixed effects approach is not. We apply both methods to a cross-section of disaggregate data on customer's choice among television options including cable, satellite, and antenna. As theory predicts, the estimated price response rises substantially when either correction is applied. All of the estimated parameters and the implied price elasticities are very similar for both methods.
Keywords: No keywords provided
JEL Codes: D0; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| omitted product attributes (Y60) | estimated price response (E30) |
| fixed effects approach (C23) | estimated price response (E30) |
| control function approach (E61) | estimated price response (E30) |
| omitted product attributes (Y60) | price sensitivity (D41) |
| fixed effects approach (C23) | price sensitivity (D41) |
| control function approach (E61) | price sensitivity (D41) |