nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2007‒09‒24
seven papers chosen by
Philip Yu
Hong Kong University

  1. Dynamic probit models for panel data: A comparison of three methods of estimation By Alfonso Miranda
  2. The Demand for Private Health Insurance in Malawi By Makoka, Donald; Kaluwa, Ben; Kambewa, Patrick
  3. Competitive politics, simplified heuristics, and preferences for public goods By Felix Schlaepfer; Marcel Schmitt; Anna Roschewitz
  4. Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments By Ronald J. Baker II; Susan K. Laury; Arlington W. Williams
  5. Do Rational Demand Estimates Differ From Irrational Ones? Evidence from an Induced Budget Experiment By Shomu Banerjee; James H. Murphy
  6. Settlement Patterns and the Geographic Mobility of Recent Migrants to New Zealand By David C. Maré; Steven Stillman; Melanie Morten
  7. Arrow's Impossibility Theorem: Preference Diversity in a Single-Profile World By Allan M Feldman; Roberto Serrano

  1. By: Alfonso Miranda (Department of Economics, Keele University)
    Abstract: Three different methods have been suggested in the econometrics literature to deal with the initial conditions problem in dynamic Probit models for panel data. Heckman (1981) suggest to approximate the reduced form marginal probability of the initial state with a Probit model and allow free correlation between unobserved individual heterogeneity entering the initial conditions and the main dynamic equations. Alternatively, Wooldridge (2002) suggest to write a dynamic model conditional on the first observation and to specify a distribution for the unobserved individual heterogeneity term conditional on the initial state and any other exogenous explanatory variables. Finally, Orme (1996) introduces a two-step bias corrected procedure that is locally valid when the correlation between unobserved individual heterogeneity determining the initial state and the dynamic Probit equations approximates to zero. Orme suggest that this two-step procedure can perform well even when such correlation is strong. I present some results from a Monte Carlo simulation study comparing the performance of all these three methods using small and medium sample sizes and low and high correlation among unobservables.
    Date: 2007–09–14
  2. By: Makoka, Donald; Kaluwa, Ben; Kambewa, Patrick
    Abstract: This study investigates the determinants of demand for private health insurance among formal sector employees in Malawi, a poor country with heavy pressure on under-funded free government health services. The study is based on membership in the Medical Aid Society of Malawi’s (MASM), three schemes, namely: the VIP, the best; the Executive, the intermediate; and the Econoplan, the minimum. The results indicate that formal sector employees prefer to receive medical treatment from private fee-charging health facilities, where health insurance would be relevant. The study finds that the probability of enrolling in any of MASM’s schemes increases with income and with age for the top and minimum schemes. More children and good health status reduce the probability of enrolling into the two lower schemes. The results suggest the potentially important roles that can be played by information and interventions that address the affordability factor such as through employer contributions that take into consideration income and family size.
    Keywords: Health insurance; MASM; Multinomial logit
    JEL: D1 I1
    Date: 2007
  3. By: Felix Schlaepfer (Socioeconomic Institute, University of Zurich); Marcel Schmitt (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland); Anna Roschewitz (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland)
    Abstract: This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a sub-sample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents’ general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information.
    Keywords: agriculture, bounded rationality, choice experiment, contingent valuation, landscape, heuristics, information, preference formation, public goods, voting
    JEL: D61 D70 D81 Q26 Q28 Q51
    Date: 2007–09
  4. By: Ronald J. Baker II (Millersville University of Pennsylvania); Susan K. Laury (Georgia State University); Arlington W. Williams (Indiana University Bloomington)
    Abstract: Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. A between-subjects experiment of group versus individual lottery-choice decisions reveal that there is not a significant difference in the average crossover point, but lottery choices are affected by a significant interaction between subject composition (individual or group) and lottery winning percentage. Also, a three-phased individual-group-individual sequenced experiment reveals that the count of safe lotteries chosen by groups is, on average, significantly greater than the mean of the individual members. Finally, making a phase-two group decision has a significant impact on subsequent phase-three individual decisions relative to the initial phase-one (individual) decisions.
    Keywords: lab experiments, risk preferences, group decisions
    JEL: C91 C92 D80
    Date: 2007–09
  5. By: Shomu Banerjee; James H. Murphy
    Abstract: Both early and recent work have highlighted certain similarities between rational and irrational demand. We re-examine these findings using experimental choice data. After separating our subjects’ choices into rational and irrational subsets based on consistency with the axioms of revealed preference, we estimate and compare demand coefficients from the resulting subsamples, finding significant differences between the two. We also predict consistency based on sociodemographics and cognitive ability, then split the sample using predicted consistency and again estimate and compare the resulting subsamples’ demand coefficients. These comparisons indicate differences between rational and irrational demand and are largely consistent with successful prediction.
    Date: 2007–09
  6. By: David C. Maré (Motu Economic and Public Policy Research); Steven Stillman (Motu Economic and Public Policy Research); Melanie Morten (Motu Economic and Public Policy Research)
    Abstract: Twenty-three percent of New Zealand's population is foreign-born and forty percent of migrants have arrived in the past ten years. Newly arriving migrants tend to settle in spatially concentrated areas and this is especially true in New Zealand. This paper uses census data to examine the characteristics of local areas that attract new migrants and gauges the extent to which migrants are choosing to settle where there are the best labour market opportunities as opposed to where there are already established migrant networks. We estimate McFadden's choice models to examine both the initial location choice made by new migrants and the internal mobility of this cohort of migrants five years later. This allows us to examine whether the factors that affect settlement decision change as migrants spend more time in New Zealand.
    Keywords: Immigration, Settlement, Mobility, New Zealand
    JEL: J61 R23
    Date: 2007–09
  7. By: Allan M Feldman; Roberto Serrano
    Date: 2007

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