Estimation of a Heterogeneous Demand Function with Berkson Errors

Abstract Berkson errors are commonplace in empirical microeconomics. In consumer demand, this form of measurement error occurs when the price an individual pays is measured by (weighted) average paid individuals a group (e.g., county) rather than true transaction price. We show importance for demand estimation with nonseparable unobserved heterogeneity. develop consistent estimator using external information on distribution. Examining gasoline United States, we document substantial within-market variability. Accounting quantitatively important. Imposing Slutsky shape constraint reduces sensitivity to errors.