nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2008‒01‒05
seven papers chosen by
Philip Yu
Hong Kong University

  1. Is neglected heterogeneity really an issue in logit and probit models? A simulation exercise for binary and fractional data By Joaquim J.S. Ramalho; Esmeralda A. Ramalho
  2. Reference-Dependent Preferences and Loss Aversion: A Discrete Choice Experiment In the Health-Care Sector By Neuman, Einat; Neuman, Shoshana
  3. Agency in Health-Care: Are Medical Care-Givers Perfect Agents? By Neuman, Einat; Neuman, Shoshana
  4. The Happiness Gains from Sorting and Matching in the Labor Market By Simon Luechinger; Alois Stutzer; Rainer Winkelmann
  5. The Role of Financial Conglomerates in Industry Formation: Evidence from Early Modern Japan By John Tang
  6. GIS and geographically weighted regression in stated preferences analysis of the externalities produced by linear infrastructures By Giaccaria Sergio; Frontuto Vito
  7. Estimating Demand for Cellular Phone Service under Nonlinear Pricing By Huang, Ching-I

  1. By: Joaquim J.S. Ramalho (Universidade de Évora – Departamento de Economia); Esmeralda A. Ramalho (Universidade de Évora – Departamento de Economia)
    Abstract: In this paper we examine by simulation whether or not the omission of orthogonal relevant variables is really an issue in logit and probit models. We found that unobserved heterogeneity: (i) attenuates the regression coefficients; (ii) hardly affects the logit estimation of partial effects, while in the probit case there may be some bias in the estimation of those quantities for some forms of heterogeneity; (iii) is almost innocuous in the prediction of outcomes, particularly in logit models; and (iv) does not affect the size of Wald tests for the significance of observed regressors but seriously reduces their power.
    Keywords: Logit, probit, neglected heterogeneity, partial effects
    JEL: C12 C13 C15 C25
    Date: 2007
  2. By: Neuman, Einat; Neuman, Shoshana
    Abstract: A Discrete Choice Experiment (DCE) in the health-care sector is used to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss than when the same-sized change is perceived as a gain. As far as is known, this paper is the first to use a DCE to test the loss aversion theory. A DCE appears to be a highly suitable tool for this testing because it estimates the marginal valuations of attributes, based on deviations from a reference point (a constant scenario). Moreover, loss aversion can be examined for each attribute separately. A DCE can also be applied to non-traded goods with non-tangible attributes. A health-care event is used for empirical illustration: The loss aversion theory is tested within the context of preference structures for maternity-ward attributes, estimated using data entailing 3850 observations from a sample of 542 women who recently gave birth. Seven hypotheses are presented and tested. Overall, significant support for behavioural loss aversion theories was found.
    Keywords: attributes; Discrete Choice Experiment; loss aversion; maternity-wards; preferences; reference-dependence
    JEL: D01 D12 I19
    Date: 2007–12
  3. By: Neuman, Einat; Neuman, Shoshana
    Abstract: It has been suggested in the literature that a source of incompleteness in the agency relationship between the doctor and the patient is that the provider may respond to an incomplete or biased perception of the patient’s interests. However, this has not been shown empirically. This paper is novel in presenting an empirical test of the fundamental assumption of the agency model that health care professionals understand what their patients want. Discrete Choice Experiments (DCEs) are conducted simultaneously within samples of patients (women who gave birth) and care-givers (doctors and nurses), to elicit and contrast patients’ authentic preferences (for five maternity ward attributes) with what care-givers believe them to be. Conclusion: agents have a biased perception of principals’ preferences, and therefore a complete agency relationship does not exist. Our findings add a novel empirical contribution to the agency relationship literature. Moreover, parallel preference patterns of patients and care-givers are certainly of much interest to the field of health economics: Informing the unaware medical care-givers about the patients' preferences, will improve treatment and patients' satisfaction.
    Keywords: Discrete Choice Experiment; health-care; maternity wards; preferences; principal-agent relationship
    JEL: I1
    Date: 2007–12
  4. By: Simon Luechinger; Alois Stutzer; Rainer Winkelmann
    Abstract: Sorting of people on the labor market not only assures the most productive use of valuable skills but also generates individual utility gains if people experience an optimal match between job characteristics and their preferences. Based on individual data on subjective well-being it is possible to assess these latter gains from matching. We introduce a two-equation ordered probit model with endogenous switching and study self-selection into government and private sector jobs. In an analysis with data from the European Social Survey, we find considerable gains from matching amounting to an increase in the fraction of very satisfied workers from 53.8 to 58.8 percent relative to a hypothetical random allocation of workers to the two sectors. A companion analysis of data from the German Socio-Economic Panel shows that selection on unobservables is reduced once we include additional controls for preference heterogeneity.
    Keywords: Household Taxation, Income Distribution, Work Incentives, Microsimulation
    Date: 2007
  5. By: John Tang
    Abstract: Large conglomerates known as zaibatsu have long been credited with leading Japanese industrialization during the Meiji Period (1868-1912). I develop a new dataset collected from corporate genealogies and estimate the likelihood of first entry with discrete choice econometric methods. I find zaibatsu are indeed more likely to pioneer new industries relative to independent firms. This may be due to their ability to finance investments internally, autonomy from shareholder interference, and lower risk aversion from being diversified. Nevertheless, zaibatsu lag independent firms in introducing innovative technologies, possibly from their preference for scale and monopolistic industries, conservative ownership, and organizational complexity.
    Keywords: Meiji Period, zaibatsu, industrialization, late development, technology adoption
    Date: 2007–12
  6. By: Giaccaria Sergio (University of Turin); Frontuto Vito (University of Turin)
    Abstract: The paper uses Contingent Valuation to investigate the externalities from linear infrastructures, with a particular concern for their dependence on characteristics of the local context within which they are perceived. We employ Geographical Information Systems and a spatial econometric technique, the Geographic Weighted Regression, integrated in a dichotomous choice CV in order to improve both the sampling design and the econometric analysis of a CV survey. These tools are helpful when local factors with an important spatial variability may have a crucial explanatory role in the structure of individual preferences. The Geographic Weighted Regression is introduced, beside GIS, as a way to enhance the flexibility of a stated preference analysis, by fitting local changes and highlighting spatial non-stationarity in the relationships between estimated WTP and explanatory variables. This local approach is compared with a standard double bounded contingent valuation through an empirical study about high voltage transmission lines. The GWR methodology has not been applied before in environmental economics. The paper shows its significance in testing the consistency of the standard approach by monitoring the spatial patterns in the distribution of the WTP and the spatial stability of the parameters estimated in order to compute the conditional WTPs.
    Date: 2007–12
  7. By: Huang, Ching-I
    Abstract: Cellular phone carriers typically offer complicated nonlinear tariffs. Consumers make a discrete choice among several rate plans. Each plan has a nonlinear price schedule, and price is usually lower for in-network calls. I present an empirical framework to estimate demand under such nonlinear pricing schemes by using parsimonious data and apply the estimation method to analyze the cellular phone service market in Taiwan. Based on the estimated model, I evaluate the impacts of termination-based pricing schemes on the market structure. While the existence of in-network discounts causes considerable tipping effects on market shares, the effects come primarily from reducing the average prices, not from the difference between in-network and off-network prices. There is no evidence showing that termination-based pricing by itself has significant effects on market structure.
    Keywords: termination-based price discrimination; optional rate plans; cellular phone service; structural estimation
    JEL: L96 L11 C35 L15
    Date: 2007–10

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