Demand Estimation Using Managerial Responses to Automated Price Recommendations

We provide a new framework to identify demand elasticities in markets where managers rely on algorithmic recommendations for price setting and apply it to a data set containing bookings for a sample of midsized hotels in Europe. Using nonbinding algorithmic price recommendations and observed delay in price adjustments by decision makers, we demonstrate that a control-function approach, combined with state-of-the-art model-selection techniques, can be used to isolate exogenous price variation and identify demand elasticities across hotel room types and over time. We confirm these elasticity estimates with a difference-in-differences approach that leverages the same delays in price adjustments by decision makers. However, the difference-in-differences estimates are more noisy and only yield consistent estimates if data are pooled across hotels. We then apply our control-function approach to two classic questions in the dynamic pricing literature: the evolution of price elasticity of demand over and the effects of a transitory price change on future demand due to the presence of strategic buyers. Finally, we discuss how our empirical framework can be applied directly to other decision-making situations in which recommendation systems are used. This paper was accepted by Omar Besbes, revenue management and market analytics.

ENDOGENEITY IN SEMIPARAMETRIC THRESHOLD REGRESSION

This paper estimates threshold regression models with an endogenous threshold variable using a nonparametric control function approach. Assuming diminishing threshold effects, we derive the consistency and limiting distribution of our proposed estimator constructed from the series approximation method for weakly dependent data. In addition, we propose a test for the endogeneity of the threshold variable, which is valid regardless of whether the threshold effects exist. We assess the performance of our methods using Monte Carlo simulations.

The impact of access to irrigation on rural incomes and diversification: evidence from China

PurposeThe objective of this study is to estimate the impacts of access to irrigation on farm income, household income and income diversification.Design/methodology/approachThis study employs an endogenous switching regression (ESR) model to address the selection bias arising from both observed and unobserved factors and analyze cross-sectional data collected from Fujian, Henan and Sichuan provinces in China. The authors use the Simpson index to measure household income diversification. The propensity score matching (PSM) model and control function approach are also used for comparison purpose.FindingsAfter controlling for the selection bias, the authors find that access to irrigation has a positive and statistically significant impact on rural incomes and diversification. The treatment effects of access to irrigation are to increase farm income, household income and income diversification by around 14, 10 and 107%, respectively. The positive effects of access to irrigation are confirmed by the estimates of the PSM model and control function approach. Further analysis reveals that the irrigation effects on rural incomes and diversification are heterogeneous between small-scale and large-scale farmers and between male-headed and female-headed households.Practical implicationsThe authors’ findings suggest that the government should continue to improve irrigation infrastructure construction in rural China to promote smallholder farmers' water access and at the same time facilitate farmers' access to better agronomic and irrigation information. There exist gender and farm size related income and diversification effects of access to irrigation, and the irrigation access is associated with farm location. Thus, when developing regional irrigation programs consideration needs to be taken of whether the rural farming systems are dominated by male/female household heads and land fragmentation/consolidation issues.Originality/valueAlthough a large body of literature has investigated the effects of irrigation development in rural areas, little is known about the impact of access to irrigation on income diversification. The selection bias associated with unobserved heterogeneities is usually neglected in previous studies. This study provides the first attempt by examining the impacts of access to irrigation on rural incomes and diversification, using the ESR model to address both observed and unobserved selection bias.

Duration of Unemployment and Salary in Cameroon

The purpose of this study is to assess the effect of unemployment duration on the wages in Cameroon. In this light; the study used data from the Survey of Employment and Informal Sector (EESI 2). A control function approach is used to correct the endogeneity of the unemployment duration and selection in paid work is considered. The results indicate that an extra month of job search decreases hourly wage in Cameroon up to 4.1%. The highlighted wage penalty is higher in urban areas, varies by age group, and does not show significant gender disparity.