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Demand Model Simulation in R with Endogenous Prices and Unobservable Quality

Toro Gonzalez, Daniel (2014): Demand Model Simulation in R with Endogenous Prices and Unobservable Quality.

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Abstract

The aim of the present routine is to simulate a demand equation with endogenous prices and unobservable product quality and to retrieve the original parameters using the Control Function (CF) approach. The CF approach is a very useful and simple method to obtain unbiased estimates. The present R code helps to understand the underlying structure of the endogeneity problem in demand estimations. Results support the important bias correction of the CF approach.

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