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Demand for nondurable goods: a shortcut to estimating long‐run price elasticities

The RAND Journal of Economics

Published online on

Abstract

When consumers stockpile, static demand models overestimate long‐term price responses. This article presents a dynamic model of demand with consumer inventories and proposes a shortcut to estimate the long‐run price elasticities without having to solve the dynamic program. Using French data on food purchases, I find elasticities consistent with those that result from the full‐blown estimations found in the literature.