Dynamics of Consumer Demand for New Durable Goods

Most new consumer durable goods experience rapid prices declines and quality improvements, suggesting the importance of modeling dynamics. This paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes, rational expectations, and repeat purchases over time. We estimate the model on the digital camcorder industry using panel data on prices, sales and characteristics. We find that the one-year elasticity in response to a transitory industry-wide price shock is about 25% less than the one-month elasticity. Standard cost-of-living indices overstate welfare gain in later periods due to a changing composition of buyers.

Unobserved Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects

Standard discrete choice models such as logit, nested logit, and random coefficients models place very strong restrictions on how unobservable product space increases with the number of products. We argue (and show with Monte Carlo experiments) that these restrictions can lead to biased conclusions regarding price elasticities and welfare consequences from additional products. In addition, these restrictions can identify parameters which are not intuitively identified given the data at hand. We suggest two alternative models that relax these restrictions, both motivated by structural interpretations. Monte-Carlo experiments and an application to data show that these alternative models perform well in practice.

Moment Inequalities in the Context of Simulated and Predicted Variables

This paper explores the effects of simulated moments on the performance of inference methods based on moment inequalities. Commonly used confidence sets for parameters are level sets of criterion functions whose boundary points may depend on sample moments in an irregular manner. Due to this feature, simulation errors can affect the performance of inference in non-standard ways. In particular, a (first-order) bias due to the simulation errors may remain in the estimated boundary of the confidence set. We demonstrate, through Monte Carlo experiments, that simulation errors can significantly reduce the coverage probabilities of confidence sets in small samples. The size distortion is particularly severe when the number of inequality restrictions is large. These results highlight the danger of ignoring the sampling variations due to the simulation errors in moment inequality models. Similar issues arise when using predicted variables in moment inequalities models. We propose a method for properly correcting for these variations based on regularizing the intersection of moments in parameter space, and we show that our proposed method performs well theoretically and in practice

Unobservable Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects

Discrete choice models used in statistical applications typically interpret an unobservable term as the interaction of unobservable horizontal differentiation and idiosyncratic consumer preferences. An implicit assumption in most such models is that all choices are equally horizontally differentiated from each other. This assumption is problematic in a number of recent studies that use discrete choice frameworks to evaluate the welfare effects from different numbers of goods (e.g. Berry and Waldfogel, 1999; Rysman, 2000). Researchers might think that it is possible for product space to "fill up" and that ignoring this issue might lead to an overestimate of welfare as the number of new products increases. This paper proposes a solution whereby the researcher estimates the decrease in value that agents receive from higher numbers of products as a result of the decreasing importance of horizontal differentiation. The paper reviews previous results on how a linear random utility model (LRUM) can be mapped into an address (Hotelling) model. The paper shows how realistic assumptions on differentiation in an address setting can be mapped into an LRUM. LRUM models imply that all choices are strong gross substitutes. In order to preserve that condition in an address model, n choices must be differentiated along at least $n-1$ dimensions. This paper proposes that utility drawn from different dimensions be weighted differently. Mapping this feature into an LRUM requires weighting the utility from each choice based upon the dimension along which it is differentiated from others. As researchers will typically be unwilling to make assumptions about which dimension products differ on, the paper discusses integrating over the different possibilities in a computationally inexpensive way that still allows the researcher to relax the assumption of symmetric differentiation.

Patents and the Performance of Voluntary Standard Setting Organizations

This paper measures the technological significance of voluntary standard setting organizations (SSOs) by examining citations to patents disclosed in the standard setting process. We find that SSO patents are cited far more frequently than a set of control patents, and that SSO patents receive citations for a much longer period of time. Furthermore, we find a significant correlation between citation and the disclosure of a patent to an SSO, which may imply a marginal impact of disclosure. These results provide the first empirical look at patents disclosed to SSOs, and show that these organizations not only select important technologies, but may also play a role in establishing their significance

Adoption Delay in a Standards War

We analyze a dynamic model in which firms and consumers choose to adopt one of two technologies or delay their adoption. Adoption allows agents to trade with other adopters of the same technology. We show that there is an inefficient equlibrium in which firms differentiate across standards and consumers delay their adoption. With one standard, there is immediate adoption, which matches the experience of the 56K modem market

Patents and the Performance of Voluntary Standard Setting Organizations

Voluntary standard setting organizations (SSOs) are a common feature of systems industries, where firms supply inter-operable components for a shared technology platform. These institutions promote coordinated innovation by providing a forum for collective decision-making and a potential solution to the problem of fragmented and overlapping intellectual property rights. This paper examines the economic and technological significance of SSOs by analyzing the flow of citations to a sample of U.S. patents disclosed during the standard-setting process. Our main results show that the age distribution of SSO patent citations is shifted towards later years (relative to an average patent), and that citations increase substantially following standardization. These results suggest that SSOs identify promising technologies and influence their subsequent adoption.standards, compatibility, platform, intellectual property, patents, cumulative innovation

Moment inequalities in the context of simulated and predicted variables

No CWP26/18, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal StudiesThis paper explores the effects of simulated moments on the performance of inference methods based on moment inequalities. Commonly used confidence sets for parameters are level sets of criterion functions whose boundary points may depend on sample moments in an irregular manner. Due to this feature, simulation errors can affect the performance of inference in non-standard ways. In particular, a (first-order) bias due to the simulation errors may remain in the estimated boundary of the confidence set. We demonstrate, through Monte Carlo experiments, that simulation errors can significantly reduce the coverage probabilities of confidence sets in small samples. The size distortion is particularly severe when the number of inequality restrictions is large. These results highlight the danger of ignoring the sampling variations due to the simulation errors in moment inequality models. Similar issues arise when using predicted variables in moment inequalities models. We propose a method for properly correcting for these variations based on regularizing the intersection of moments in parameter space, and we show that our proposed method performs well theoretically and in practice.First author draf

Patents and the Performance of Voluntary Standard Setting Organizations

This paper measures the technological significance of voluntary standard setting organizations (SSOs) by examining citations to patents disclosed in the standard setting process. We find that SSO patents are cited far more frequently than a set of control patents, and that SSO patents receive citations for a much longer period of time. Furthermore, we find a significant correlation between citation and the disclosure of a patent to an SSO, which may imply a marginal impact of disclosure. These results provide the first empirical look at patents disclosed to SSOs, and show that these organizations not only select important technologies, but may also play a role in establishing their significance

Costs and Benefits of Building Faster Payment Systems: The UK Experience

: A number of countries have implemented faster payment services that allow consumers and businesses to rapidly transfer money between bank accounts. These services compete with slower, existing payment services. In 2008, the United Kingdom implemented its Faster Payments Service (FPS) at a cost of less than ₤200 million (.014 percent of U.K. GDP, or $307 million) spread over seven years, plus investment costs borne by each participating bank to connect to the FPS. This paper examines the economic cost-benefit analysis underlying the U.K. FPS investment decision and describes the subsequent diffusion and use of FPS through 2014