Consumer demand with unobservable product attributes : part I: theory

This paper develops a new framework for empirical modelling of consumer demand with particular reference to products that are differentiated with respect to quality and location attributes. The point of departure is a flexible representation of the distribution of product attributes and consumer tastes. From this representation and additional behavioral assumptions we derive a structural model for the distribution of the chosen product attributes and the associated quantities. Furthermore, an explicit relationship between the distribution of prices and unit values is obtained. Keywords: Price distribution, differentiated products, quality attributes, hedonic price indexes. JEL classification: C25, C43, D1