Tuesday, November 17, 2015

Estimating Demand Elasticity

Joseph wrote:

Dear Sir/Ma,

I am a research student currently conducting a study to determent the price and income elasticity of demand for fuel products in Nigeria, using a Quadratic Almost Ideal Demand System. I am using a cross sectional data (Harmonized National Living Standard Survey, 2009) obtained from the statistical agency in Nigeria. Currently, I face a challenge estimating the price elasticity of demand for fuel product because prices are constant across household units in the survey period (2009). The survey data contains information on expenditure of various fuel products, but no information is available on the price and quantities of fuel products purchased. However, I obtained the price of each product in 2009, but it is constant across all households, as a uniform price is applicable in Nigeria. This poses a challenge in estimating the price elasticity of demand for fuel products. To circumvent this problem, some studies have used quantities of each product to divide expenditure of each product. This will create the needed variability in prices. This approach seems impossible to me since my data set has no quantity of fuel products purchased. I humbly write to seek for more clarification on how to obtain variability in prices of each product across various households units in the survey. Thanks Joseph O.

My response:

I'm afraid I can't offer any further insight to what you've already said.  I don't do empirical work and as you said, you don't have the data do produce estimates here.  It seems to me the best you can do is some survey on what others have found.  After a quick search I found this paper by Boshoff.  You are probably aware of it already.  But in case not, on page 48 (page 6 of the pdf) there is a table with other estimates provided.  And then, of course, there are his own estimates later in the paper.  Those are for South Africa, not Nigeria.  In the absence of data about your own country, however, you should find what else is known about gasoline demand elasticity elsewhere.

Saturday, May 9, 2015

Marginal Product of Labor in the Shapiro and Stiglitz Model

Dear Professor, 

Thanks fir putting those lessons on youtube!

I saw your video on the Shapiro Stiglitz Model and my doubt is regarding the comparative statistics of Marginal Productivity of Labour with unemployment and wages.

According to my understanding, when unemployment increases, the wages should decrease as firms do not need to offer high wages to prevent workers from shirking, unemployment acts as a disciplining tool.
How does the Marginal Productivity of Labour vary with this? Does is it Increase as well?

Best Regards
Utkarsh Katyaayun

My Response:

First, I'm sorry this has taken a while.  I didn't see the question until this morning.   

The Shapiro-Stiglitz model is quite conventional on the productivity side.  There is a production function for each firm.  That determines output based on the number employees hired (assuming they don't shirk).  The unemployment rate in the market doesn't impact productivity at an individual firm at all, if the workers put for effort.  In other words, the marginal product of labor curve looks just like the it does for a neoclassical firm in intermediate microeconomics.

All the interaction is on the incentive side.  There, as you say, if the unemployment rate is higher, which means future job acquisition is lower once unemployed.  So the efficiency wage need not be as great then.