nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2006‒07‒09
three papers chosen by
Philip Yu
Hong Kong University

  1. A Multinomial Approach to Early Warning Systems for Debt Crises By Alessio Ciarlone; Giorgio Trebeschi
  2. Cost Benefit Analysis on Public Transport Investment by Choice Experiment Method: An Example of Osaka Monorail Saito Linefs Extension (in Japanese) By Junyi Shen; Yusuke Sakata; Yoshizo Hashimoto
  3. Differentiated duopoly with "Elimination by Aspects" By Reynald-Alexandre Laurent

  1. By: Alessio Ciarlone (Bank of Italy); Giorgio Trebeschi (Bank of Italy)
    Abstract: This paper develops an early warning system for sovereign debt crises, broadly defined as episodes of outright default, failure of a country to be current on external obligations and substantial access to IMF resources. It estimates a multinomial logit model that makes it possible to differentiate between three regimes labelled ‘tranquil’, ‘pre-crisis’ and ‘adjustment’. The model includes a large set of macroeconomic variables and is able to predict, in-sample, 78 per cent of onsets of crisis while sending false alarms in 34 per cent of tranquil cases; its out-of-sample performance is very similar, with 70 per cent of entries into crisis correctly predicted and 20 per cent of tranquil cases triggering false alarms.
    Keywords: emerging markets, early warning systems, debt crises, default
    JEL: H63 E66
    Date: 2006–05
  2. By: Junyi Shen (Institute of Social and Economic Research, Osaka University); Yusuke Sakata (School of Economics, Kinki University); Yoshizo Hashimoto (Osaka Prefectural Institute for Advanced Industry Development)
    Abstract: The necessity of applying Cost Benefit Analysis (CBA) in evaluating the validity of a public transport investment is well recognized by policy makers in recent days. Originating in a sense of this fact, we implement CBA in a new project called Osaka Monorail Saito Linefs extension by applying a Choice Experiment (CE) method. It is estimated that the benefit cost (B/C) ratio is 1.87 under a basic scenario. In addition, with a consideration on different kinds of uncertainty in the future, a number of sensitivity analyses are implemented. The results of sensitivity analysis indicate that the possibility of generating net benefit is extremely high for the project studied here.
    Keywords: Cost Benefit Analysis, Choice Experiment (CE) method, Monorail, Sensitive Analysis
    JEL: C25 D61 R42
    Date: 2006–07
  3. By: Reynald-Alexandre Laurent
    Abstract: "Elimination by aspects" (EBA) is a discrete model of probabilistic choice worked out by Tversky in 1972 which supposes that decision makers follow a particular heuristic during a process of sequential choice. Options are described by their attributes and, at each decision stage, the individuals eliminate all the options not having an expected given attribute, and so until only one option remains. In this paper, probabilities resulting from the EBA model are used to construct demands of a differentiated duopoly with imperfect rationality. These demands are consistent with partial heterogeneity of tastes and may be linked with a spatial framework in which consumers have convex perception of distance. In this model, a Nash price equilibrium in pure strategies exists if the cost of the highest attributes level firm is not too low. In this case, the "differentiation by attributes" form retained here is both horizontal and vertical, which is not very frequent in the literature. When the equilibrium does not exists, the interaction of best response functions of the firms induces an Edgeworth cycle instead of an exit of the lowest attributes level firm. This result underlines the role of cost difference in the existence of such a cycle.
    Date: 2006

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