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Title: Improving the performance of random coefficients demand models: the role of optimal instruments
Authors: Reynaert, Mathias
Verboven, Frank
Issue Date: Jun-2012
Publisher: KU Leuven CES
Series Title: CES - Discussion paper series DPS12.07 pages:1-32
Abstract: We shed new light on the performance of Berry, Levinsohn and Pakes’ (1995) GMM estimator of the aggregate random coefficient logit model. Based on an extensive Monte Carlo study, we show that the use of Chamberlain’s (1987) optimal instruments overcomes most of the problems that have recently been documented with standard, non-optimal instruments. Optimal instruments reduce small sample bias, but prove even more powerful in increasing the estimator’s efficiency and stability. Other recent methodological advances (MPEC, polynomial-based integration of the market shares) greatly improve computational speed, but they are only successful in terms of bias and efficiency when combined with optimal instruments.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center of Econometrics @ Leuven

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