Abstract
Consumer choices are constrained in many markets due to either supply-side rationing or information frictions. Examples include matching markets for schools and colleges; entry-level labor markets; limited brand awareness and inattention in consumer markets; and selective admissions to healthcare services. Accounting for these choice constraints is essential for estimating consumer demand. We use a general random utility model for consumer preferences that allows for endogenous characteristics and a reduced-form choice-set formation rule that can be derived from models of the examples described above. The choice-sets can be arbitrarily correlated with preferences. We study non-parametric identification of this model, propose an estimator, and apply these methods to study admissions in the market for kidney dialysis in California. Our results establish identification of the model using two sets of instruments, one that only affects consumer preferences and the other that only affects choice sets. Moreover, these instruments are necessary for identification – our model is not identified without further restrictions if either set of instruments does not vary. These results also suggest tests of choice-set constraints, which we apply to the dialysis market. We find that dialysis facilities are less likely to admit new patients when they have higher than normal caseload and that patients are more likely to travel further when nearby facilities have high caseloads. Finally, we estimate consumers' preferences and facilities' rationing rules using a Gibbs sampler.

*Jointly written with Nikhil Agarwal

Paulo Somaini
Ph.D. in Economics, Stanford University.
Associate Professor of Economics, Stanford Graduate School of Business. His main research interests are industrial organization, mechanism design, econometrics and microeconomic theory. His work has been published in journals such as Econometrica, Journal of Political Economy and Latin American Economic Review.