On endogeneity of consumer expenditures in the estimation of households demand system

The paper analyzes one case of the endogeneity problem, namely, the presence of measurement error in consumer expenditures by estimation of the demand system according to the household sample surveys. Based on factor analysis a novel approach is proposed and tested. It allows weakening the bias of demand elasticity estimates and does not require additional information (instrumental variables, repeated observations). Its advantage is the possibility of estimating the parameters of the true consumer expenditures distribution which give an idea of the distortion degree of information on the population expenditures.