Demand Analysis under Latent Choice Constraints

Agarwal and Somaini study demand estimation in markets where consumers face latent choice constraints — situations where a consumer’s effective choice set is determined not only by her preferences but also by supply-side rationing or information frictions that restrict which options are actually available to her. Standard discrete choice methods assume consumers pick freely from the full product set, but this assumption fails in school and college admissions, entry-level labor markets, healthcare with selective admissions, and consumer markets with incomplete consideration sets. The paper provides a unified non-parametric identification framework for this class of models, proves necessity of the identifying instruments, proposes a computationally tractable estimator, and applies the framework to the California kidney dialysis market.

Paulo Somaini | Macro Paper Warehouse

Demand Analysis under Latent Choice Constraints