In a recent post I discussed some aspects of estimating elasticities from regression models, and the interpretation of these values. That discussion should be kept in mind in reading what follows.
One thing that a lot of practitioners seem to be unaware of (or they choose to ignore it) is that in many of the common situations where we use regression analysis to estimate elasticities, these estimators are biased.
One thing that a lot of practitioners seem to be unaware of (or they choose to ignore it) is that in many of the common situations where we use regression analysis to estimate elasticities, these estimators are biased.
And that's true even if all of the conditions needed for the coefficient estimator (e.g., OLS) to be unbiased are fully satisfied.
Let's look at some common situations leading to the estimation of elasticities and marginal effects, and see if we can summarize what's going on.