nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2006‒04‒22
fifteen papers chosen by
Philip Yu
Hong Kong University

  1. A Theory of Procedurally Rational Choice: Optimization without Evaluation By Stefano Ficco; Vladimir Karamychev; Peran van Reeven
  3. Health Information and the Choice of Fish Species: An Experiment Measuring the Impact of Risk and Benefit Information By Marette, Stéphan; Roosen, Jutta; Blanchemanche, Sandrine; Verger, Philippe
  4. Estimation with Numerical Integration on Sparse Grids By Heiss, Florian; Winschel, Viktor
  5. Exit Dynamics with Adjustment Costs By Rolf Golombek and Arvid Raknerud
  6. A Behavioral Model of Work-trip Mode Choice in Shanghai By Gang Liu
  7. Does Campaign Finance imply Political Favors? By Stijn Claessens; Erik Feijen
  8. Households' self-selection of a dynamic electricity tariff By Torgeir Ericson
  9. Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply By Rolf Aaberge, Ugo Colombino and Tom Wennemo
  10. Effects of Family Policy Reforms in Norway. Results from a Joint Labor Supply and Child Care Choice Microsimulation Analysis By Tom Kornstad and Thor Olav Thoresen
  11. The Demand for Power Diffusion: A Case Study of the 2005 Constitutional Referendum Voting in Kenya By Mwangi S. Kimenyi
  12. Revealed preference and indifferent selection By Eric Danan
  13. Estimation of a Binary Choice Model with Grouped Choice Data By Lyubov A. Kurkalova; Sergey Rabotyagov
  14. Assessing Consumers' Valuation of Cosmetically Damaged Apples Using a Mixed Probit Model By Chengyan Yue; Helen H. Jensen; Daren S. Mueller; Gail R. Nonnecke; Mark L. Gleason
  15. Quality and Competition: An Empirical Analysis across Industries By John M. Crespi; Stephan Marette

  1. By: Stefano Ficco (Erasmus Universiteit Rotterdam); Vladimir Karamychev (Erasmus Universiteit Rotterdam); Peran van Reeven (Erasmus Universiteit Rotterdam)
    Abstract: This paper analyses the behavior of an individual who wants to maximize his utility function, but he is not able to evaluate it. There are many ways to choose a single alternative from a given set. We show that a unique utility maximizing procedure exists. Choices induced by this optimal procedure are always transitive but generally violate the Weak Axiom. In other words, utility maximizing individuals who are unable to evaluate their objective functions fail to exhibit rational revealed preferences.
    Keywords: Bounded rationality; optimal selection procedure; procedural rationality
    JEL: D81
    Date: 2006–01–06
  2. By: Bjørnsen, Hild-Marte (Norwegian Institute for Urban and Regional Research); Biørn, Erik (Dept. of Economics, University of Oslo)
    Abstract: Farm couples' labour market responses are partly the qualitative choice of entering the ff-farm labour market and partly the continuous choice of the number of on-farm and off-farm working hours, given entry. Such a setting is interesting when examining the increasing occurrence of multiple job-holdings among farmers in western economies. This paper presents a unified framework for handling such discrete/continuous choices, involving optimisation of farm production, household consumption, and multiple job-holdings for both husband and wife. A two-equation censoring panel data model is implemented and estimated from Norwegian panel data for 342 farms observed over a ten-year period.
    Keywords: Labour; supply.; Agriculture.; Multiple; job-holding.; Time; allocation.; Bivariate; censoring.; Panel; data.; Heterogeneity
    JEL: C34 D21 J22 J43
    Date: 2006–03–15
  3. By: Marette, Stéphan; Roosen, Jutta; Blanchemanche, Sandrine; Verger, Philippe
    Abstract: An experiment was conducted in France to evaluate the impact of health information on consumers’ choice between two different types of fish. Successive messages revealing risks (methylmercury) and benefits (omega-3s) of consuming the fish, along with consumption recommendations, were delivered. Results show a significant difference of reaction according to the order and type of information. The information about risks had a larger marginal impact on change in willingness to pay (WTP) than did the information about benefits. While the results show that detailed messages on risks/benefits, including recommendations for nutrition behavior, matter in the modification of WTP, 40% of respondents did not change their initial choices after the revelation of health information.
    Keywords: experimental economics, fish consumption, health information, nutrition.
    Date: 2006–04–05
  4. By: Heiss, Florian; Winschel, Viktor
    Abstract: For the estimation of many econometric models, integrals without analytical solutions have to be evaluated. Examples include limited dependent variables and nonlinear panel data models. In the case of one-dimensional integrals, Gaussian quadrature is known to work efficiently for a large class of problems. In higher dimensions, similar approaches discussed in the literature are either very specific and hard to implement or suffer from exponentially rising computational costs in the number of dimensions - a problem known as the "curse of dimensionality" of numerical integration. We propose a strategy that shares the advantages of Gaussian quadrature methods, is very general and easily implemented, and does not suffer from the curse of dimensionality. Monte Carlo experiments for the random parameters logit model indicate the superior performance of the proposed method over simulation techniques.
    JEL: C25 C15
    Date: 2006–04
  5. By: Rolf Golombek and Arvid Raknerud (Statistics Norway)
    Abstract: We use the Stock and Wise approximation of stochastic dynamic programming in order to identify the extent to which profitability can explain exit behavior. In our econometric model, heterogeneous firms engage in Bertrand (price) competition. Firms produce heterogeneous products, using labor, materials and capital as inputs. The stock of capital is changed through investments and disinvestments, where the firm incurs adjustment costs due to partial irreversibilities. The model is estimated for six manufacturing industries using Norwegian micro data for the period 1993-2002. We find that increased profitability lowers the exit probability, and this effect is statistically significant in all industries, while, ceteris paribus, high adjustment costs significantly decrease the probability of exit in five of the industries. Exiting firms are characterized by persistently, although only moderately higher, annual exit probabilities than the average firm. There is no tendency for exiting firms to have a high probability of exit just prior to exit.
    Keywords: Firm exit; adjustment costs; Bertrand game; manufacturing firms; mixed logit; state space model.
    JEL: C33 C51 C61 C72 D21
    Date: 2005–12
  6. By: Gang Liu (Statistics Norway)
    Abstract: This paper analyzes travelers’ choice behavior by using data from a stated preference survey on work-trip mode choice in Shanghai. Several versions of a multinomial choice model are specified and estimated. According to the estimation results the utility function with money cost divided by income adjusted by an equivalence scale is chosen as the preferred model. Based on the estimation results from the preferred model, value of time, elasticities of aggregate mode choice with respect to income, cost, travel and waiting time, are computed. The conditional elasticities given low, middle and high adjusted income levels are calculated and discussed as well. The results obtained may be useful for transportation policy makers in Shanghai.
    Keywords: work-trip mode choice; stated preference survey; multinomial choice model; choice probability and elasticity
    JEL: C25 C42 C52 R41
    Date: 2006–01
  7. By: Stijn Claessens (Universiteit van Amsterdam, and World Bank); Erik Feijen (Universiteit van Amsterdam)
    Abstract: This paper analyses the behavior of an individual who wants to maximize his utility function, but he is not able to evaluate it. There are many ways to choose a single alternative from a given set. We show that a unique utility maximizing procedure exists. Choices induced by this optimal procedure are always transitive but generally violate the Weak Axiom. In other words, utility maximizing individuals who are unable to evaluate their objective functions fail to exhibit rational revealed preferences.
    Keywords: Campaign contributions; Elections; Corruption; Preferential lending
    JEL: D81
    Date: 2006–01–06
  8. By: Torgeir Ericson (Statistics Norway)
    Abstract: Offering electricity consumers time-differentiated tariffs may increase demand responsiveness, thereby reducing peak consumption. However, one concern is that time-differentiated tariffs may also attract consumers who benefit because of their consumption pattern, even without a corresponding demand response. A discrete choice model applied to data from a residential dynamic pricing experiment indicates that higher demand flexibility increases the propensity of a household to select dynamic tariffs, while favourable consumption patterns do not influence the tariff choice. The offering of dynamic time-differentiated tariffs is then likely to increase the demand response among residential consumers.
    Keywords: demand response; dynamic pricing; electricity tariff; self-selection; rate option.
    JEL: D10 Q41
  9. By: Rolf Aaberge, Ugo Colombino and Tom Wennemo (Statistics Norway)
    Abstract: During the last two decades, the discrete-choice modelling of labour supply decisions has become increasingly popular, starting with Aaberge et al. (1995) and van Soest (1995). Within the literature adopting this approach there are however two potentially important issues that are worthwhile analyzing in their implications and that so far have not been given the attention they might deserve. A first issue concerns the procedure by which the discrete alternatives are selected to enter the choice set. For example van Soest (1995) chooses (non probabilistically) a set of fixed points identical for every individual. This is by far the most widely adopted method. By contrast, Aaberge et al. (1995) adopt a sampling procedure suggested by McFadden (1978) and also assume that the choice set may differ across the households. A second issue concerns the availability of the alternatives. Most authors assume all the values of hours-of-work within some range [0, H] are equally available. At the other extreme, some authors assume only two or three alternatives (e.g. non-participation, part-time and full-time) are available for everyone. Aaberge et al. (1995) assume instead that not all the hour opportunities are equally available to everyone; they specify a probability density function of opportunities for each individual and the discrete choice set used in the estimation is built by sampling from that individual-specific density function. In this paper we explore by simulation the implications of - the procedure used to build the choice set (fixed alternatives vs sampled alternatives) - accounting or not accounting for a different availability of alternatives. The way the choice set is represented seems to have little impact on the fitting of observed values, but a more significant and important impact on the out-of-sample prediction performance.
    Keywords: Labour supply; discrete-choice models; quantity constraints; prediction performance
    JEL: C51 C52 H31 J22
  10. By: Tom Kornstad and Thor Olav Thoresen (Statistics Norway)
    Abstract: Mothers of preschool children represent one part of the population that might be able to increase its labor supply. We discuss effects of family policy changes that encourage the labor supply of these mothers, as child care fee reductions and increased availability of center-based care. Effects of policy changes are described by employing a joint labor supply and child care choice decision model. Detailed empirical results are provided with respect to mothers’ labor supply, families' child care choices, public expenditures, and distributions of income and money metric utility.
    Keywords: : female labor supply; child care; family policy; discrete choice; microsimulation; compensating variation
    JEL: D12 D31 J22 H23
    Date: 2006–03
  11. By: Mwangi S. Kimenyi (University of Connecticut)
    Abstract: Recent studies on the history of economic development demonstrate that concentration of power on a monarch or a ruling coalition impedes economic growth and that institutional changes that diffuse power, though beneficial to the society in general, are opposed by some social groups. In November 2005, Kenyans rejected a proposed constitution primarily because it did not reduce the powers of the executive to any significant degree. Using data of voting patterns in the constitutional referendum and following the rational choice framework, I estimate a model of the demand for power diffusion and demonstrate that groups voting decisions depend on expected gains and likelihood of monopolizing power. The results also reveal the importance of ethnic divisions in hindering the power diffusion process, and therefore the study establishes a channel through which ethnic fragmentation impacts on economic development.
    JEL: D72
    Date: 2006–04
  12. By: Eric Danan
    Abstract: It is shown that preferences can be constructed from observed choice behavior in a way that is robust to indifferent selection (i.e., the agent is indifferent between two alternatives but, nevertheless, is only observed selecting one of them). More precisely, a suggestion by Savage (1954) to reveal indifferent selection by considering small monetary perturbations of alternatives is formalized and generalized to a purely topological framework: references over an arbitrary topological space can be uniquely derived from observed behavior under the assumptions that they are continuous and nonsatiated and that a strictly preferred alternative is always chosen, and indifferent selection is then characterized by discontinuity in choice behavior. Two particular cases are then analyzed: monotonic preferences over a partially ordered set, and preferences representable by a continuous pseudo-utility function.
    Keywords: Revealed preference, indifference, choice behavior, continuity, nonsatiation, monotonicity, pseudo-utility
    JEL: D11
    Date: 2006–04
  13. By: Lyubov A. Kurkalova; Sergey Rabotyagov
    Abstract: We propose an econometric technique for estimating the parameters of a binary choice model when only aggregated data are available on the choices made. The method performs favorably in applications to both simulated and real world choice data.
    Keywords: aggregated choice data, binary choice model.
    JEL: C25
    Date: 2005–01
  14. By: Chengyan Yue; Helen H. Jensen (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC)); Daren S. Mueller; Gail R. Nonnecke; Mark L. Gleason
    Abstract: A mixed probit model was applied to survey data to analyze consumers' willingness to buy apples with cosmetic damage caused by the sooty blotch and flyspeck (SBFS) disease complex. The analysis finds consumers will pay a premium for organic production methods and for apples with low amounts of SBFS damage. Behavioral variables such as experience in growing fruit significantly affect the willingness to buy apples of different damage levels. Consumers' tolerance of very blemished apples is limited and they trade off production technology attributes for cosmetic appearance. Better understanding of this trade-off is important to organic producers' decisions about disease control.
    Keywords: apples, sooty blotch and flyspeck, organic, cosmetic damage, willingness to buy, mixed probit model.
    Date: 2005–12
  15. By: John M. Crespi; Stephan Marette (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: This paper empirically explores the link between quality and concentration in a cross-section of manufactured goods. Using concentration data and product quality indicators, an ordered probit estimation explores the impact of concentration on quality that is defined as an index of quality characteristics. The results demonstrate that market concentration and quality are positively correlated across different industries. When industry concentration increases, the likelihood of the product being higher quality increases and the likelihood of observing a lower quality decreases.
    Keywords: concentration, market structure, ordered probit, product differentiation, product quality.
    Date: 2006–03

This nep-dcm issue is ©2006 by Philip Yu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.