nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2007‒11‒10
five papers chosen by
Philip Yu
Hong Kong University

  1. Designs Efficiency for Non-market Valuation with Choice Modelling: How to Measure It, What to Report and Why By John M. Rose; Riccardo Scarpa
  2. Models for Non-Exclusive Multinomial Choice, with Application to Indonesian Rural Households By Christopher L. Gilbert; Francesca Modena
  3. Contingent valuation: a new perspective By Felix Schlaepfer
  4. Probalilistic duopoly with differentiation by attributes By Reynald-Alexandre Laurent
  5. "It's the Challenger, Stupid!": Elections and the Theory of Rank-Order Tournaments By Michael Funk; Reiner Eichenberger

  1. By: John M. Rose (ITLS -- University of Sydney); Riccardo Scarpa (University of Waikato)
    Abstract: We review the basic principles for the evaluation of design efficiency in discrete choice modelling with a focus on efficiency of WTP estimates from the multinomial logit model. The discussion is developed under the realistic assumption that researchers can plausibly define a prior on the utility coefficients. Some new measures of design performance in applied studies are proposed and their rationale discussed. An empirical example based on the generation and comparison of fifteen separate designs from a common set of assumptions illustrates the relevant considerations to the context of non-market valuation, with particular emphasis placed on C-efficiency. Conclusions are drawn for the practice of reporting in non-market valuation and for future work on design research.
    Keywords: experimental design; multinomial logit; willingness to pay; choice modelling; C-efficiency
    JEL: C25 Q51
    Date: 2007–10–31
  2. By: Christopher L. Gilbert; Francesca Modena
    Abstract: Textbook discussions of discrete choice modelling focus on binomial and multinomial choice models in which agents select a single response. We consider the situation of non-exclusive multinomial choice. The widely used Marginal Logit Model imposes independence and has other disadvantages. We propose two models which account for non-exclusive and dependent multiple responses and require at least one response. In the first and simpler specification, the Poisson-multinomial, households first choose the number of responses to a specific shock, and then the specific choices are identified to maximize household utility conditional on the former choice. The second specification, the threshold-multinomial, generalizes the standard multinomial logit model by supposing that agents will choose more than one response if the utility they derive from other choices is “close” to that of the utility-maximizing choice. We apply these two approaches to reported responses of rural Indonesian rural households to demographic and economic shocks.
    Keywords: Discrete choice models, Marginal logit, Shocks, Risk coping strategies
    JEL: C25 C51 O12
    Date: 2007
  3. By: Felix Schlaepfer (Socioeconomic Institute, University of Zurich)
    Abstract: After several decades of academic research on the contingent valuation (CV) method a consistent behavioral explanation of Ôhypothetical biasÕ is still lacking. Based on evidence from economics, economic psychology and the political sciences, I propose an explanation that is based on two simple working hypotheses about respondent behaviour in contingent valuation surveys. The first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable, informative cues that can be rationally exploited in simplified heuristics. The second hypothesis is that the probability and impact of strategic responses in dichotomous-choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs. The literature on hypothetical bias is revisited in the light of these behavioral hypotheses. I find that the hypotheses are generally supported by the empirical data. Moreover, the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain. In particular, they solve the puzzle that pre-election polls, but not CV surveys, are able to predict actual referendum outcomes, and they explain why income effects on willingness to pay are lower in CV responses than in actual votes. If confirmed by further studies, the hypotheses will have important implications for future research and practice. First, the hypothetical costs presented in the dichotomous choice question should to be close enough to the actual costs to be credible to all respondents. This can be achieved by specifying the costs as a percentage (rather than absolute) change in taxes. Second, the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information. Theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods.
    Keywords: Stated preferences, incentives, information, public goods
    JEL: B41 C93 D81 D82 H Q51
    Date: 2007–11
  4. By: Reynald-Alexandre Laurent
    Abstract: This paper proposes a discrete choice duopoly in which products are described and differentiated by their specific attributes. These attributes can be discrete characteristics or differences in continuous variables, such as prices or qualities. Consumers follow a probabilistic reasoning which is consistent with random decision rule models such as Tversky's "Elimination by Aspects" framework (1972a,b). This type of behavior is relevant for small everyday life purchases. The demand system provides a general structure of product differentiation in which special cases are given by classical models of horizontal and vertical differentiation. Existence and uniqueness of a price Nash equilibrium in pure strategies are established in the duopoly. When attributes' utilities vary, comparative statics properties of profits can be explained by "attractiveness" and "differentiation" effects. These effects are combined in a new way compared to the deterministic structures or to the logit duopoly. For example, an increase in the low utility index of attributes strengthens product differentiation.
    Date: 2007
  5. By: Michael Funk; Reiner Eichenberger
    Abstract: Democratic elections look very much like a contest where voters have to compare the candidates according to an ordinal ranking. Nevertheless, the theory of tournaments has not yet been applied to Political Economics. Therefore, we deploy tournament models to analyse elections. The main difference between tournaments in a firm and election tournaments is a systematic asymmetry between the contestants: whereas the voters have plenty of information about the incumbent, they hardly know anything about the challenger. Unlike most models of political accountability that model the challenger as a standard, we focus on the specific role of the challenger and model him as a random draw with a given expected ability. Consequently the ordinal ranking of the candidates contains plenty of noise, which weakens the incumbent's incentives to exert e¤ort. After the presentation of the basic model, several extensions of the tournament theme in politics are explored. The model gives a fresh insight into very important aspects of politics, such as sabotage and selection, and it identifies exective policy reforms, e.g. the deregulation of politics.
    Keywords: Tournament; Political Agency; Elections
    JEL: D8 D72 H11
    Date: 2007–10

This nep-dcm issue is ©2007 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.