Unobserved Preference Heterogeneity in Demand Using Generalized Random Coefficients

Abstract

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 existing random coefficients models by not imposing a linear index structure for the regressors. We then model unobserved preference heterogeneity in consumer demand as utility functions with random Barten scales. These Barten scales appear as random coefficients in nonlinear demand equations. 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.