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Modeling Consumer Demand for a Large Set of Quality Differentiated Goods: Estimation and Welfare Results from a Systems Approach

Roger H. von Haefen, Daniel J. Phaneuf, and George R. Parsons


We develop an approach for estimating individual level preferences for a large set of quality differentiated goods and for constructing Hicksian welfare measure for price and quality changes within the demand system framework. Our approach uses a simulated maximum likelihood estimation procedure for recovering estimates of the structural parameters and an adaptive Metropolis-Hastings algorithm for constructing Hicksian consumer surplus estimates. We illustrate our approach with a recreation data set consisting of day trips to 62 Mid-Atlantic beaches.