nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2008‒07‒14
eight papers chosen by
Philip Yu
Hong Kong University

  1. Instrumental Variables in Models with Multiple Outcomes: The General Unordered Case By Heckman, James J.; Urzua, Sergio; Vytlacil, Edward
  2. Calibration and IV Estimation of a Wage Outcome Equation in a Dynamic Environment By Belzil, Christian; Hansen, Jörgen
  3. The influence of cultural identity on the WTP to protect natural resources: some empirical evidence. By David Hoyos Ramos; Petr Mariel Chladkova; Javier Fernández Macho
  4. Willingness to Pay for Car Safety: Sensitivity to Time Framing By Andersson, Henrik; Hammitt, James; Lindberg, Gunnar; Sundström, Kristian
  5. Preference Heterogeneity and Habit Persistence: the Case of Breakfast Cereal Consumption By Thunström, Linda
  6. Does Fertility Respond to Financial Incentives? By Laroque, Guy; Salanié, Bernard
  7. Eliciting Motives for Trust and Reciprocity by Attitudinal and Behavioural Measures By Farina, Francesco; O'Higgins, Niall; Sbriglia, Patrizia
  8. Assessing the Determinants of Local Acceptability of Wind Farm Investment: A Choice Experiment in the Greek Aegean Islands By Alexandros Dimitropoulos; Andreas Kontoleon

  1. By: Heckman, James J. (University of Chicago); Urzua, Sergio (Northwestern University); Vytlacil, Edward (Yale University)
    Abstract: This paper develops the method of local instrumental variables for models with multiple, unordered treatments when treatment choice is determined by a nonparametric version of the multinomial choice model. Responses to interventions are permitted to be heterogeneous in a general way and agents are allowed to select a treatment (e.g., participate in a program) with at least partial knowledge of the idiosyncratic response to the treatments. We define treatment effects in a general model with multiple treatments as differences in counterfactual outcomes that would have been observed if the agent faced different choice sets. We show how versions of local instrumental variables can identify the corresponding treatment parameters. Direct application of local instrumental variables identifies the marginal treatment effect of one option versus the next best alternative without requiring knowledge of any structural parameters from the choice equation or any large support assumptions. Using local instrumental variables to identify other treatment parameters requires either large support assumptions or knowledge of the latent index function of the multinomial choice model.
    Keywords: treatment effects, multinomial, nonparametric
    JEL: C31
    Date: 2008–06
  2. By: Belzil, Christian (Ecole Polytechnique, Paris); Hansen, Jörgen (Concordia University)
    Abstract: We consider an artificial population of forward looking heterogeneous agents making decisions between schooling, employment, employment with training and household production, according to a behavioral model calibrated to a large set of stylized facts. Some of these agents are subject to policy interventions (a higher education subsidy) that vary according to their generosity. We evaluate the capacity of Instrumental Variable (IV) methods to recover the population Local Average Treatment Effect (LATE) and analyze the economic implications of using a strong instrument within a dynamic economic model. We also examine the performances of two sampling designs that may be used to improve classical linear IV; a Regression-Discontinuity (RD) design and an age-based sampling design targeting early career wages. Finally, we investigate the capacity of IV to estimate alternative "causal" parameters. The failure of classical linear IV is spectacular. IV fails to recover the true LATE, even in the static version of the model. In some cases, the estimates lie outside the support of the population distribution of returns to schooling and are nearly twice as large as the population LATE. The trade-off between the statistical power of the instrument and dynamic self-selection caused by the policy shock implies that access to a "strong instrument" is not necessarily desirable. There appears to be no obvious realistic sampling design that can guarantee IV accuracy. Finally, IV also fails to estimate the reduced-form marginal effect of schooling on wages of those affected by the experiment. Within a dynamic setting, IV is deprived of any “causal” substance.
    Keywords: dynamic discrete choice, dynamic programming, treatment effects, weak instruments, instrumental variable, returns to schooling
    JEL: B4 C1 C3
    Date: 2008–06
  3. By: David Hoyos Ramos (Unidad de Economía Ambiental, Instituto de Economía Pública); Petr Mariel Chladkova (Departamento de Economía Aplicada III); Javier Fernández Macho (Departamento de Economía Aplicada III)
    Abstract: This paper shows that cultural identity may have considerable influence on the WTP to protect natural resources. The Basque Country, the region with the highest ethnic homogeneity in Europe, serves as an example to illustrate how important this issue can be in the environmental valuation of natural resources. The rationale for this influence may be found in the deep roots of the Basque culture, a culture where amalurra (mother Earth), i.e. the natural environment, has a central role, as studies from diverse disciplines such as anthropology, psychology and political science have shown. Simulated full distribution of the WTP to protect a Basque natural area using a random parameter logit model reveals that mean marginal WTP to protect its environmental attributes is approximately 60% higher if the cultural identity of the respondent is Basque. To our knowledge, this is the first application to show the influence of cultural identity on the WTP to protect natural resources. Our findings have some methodological and policy implications. On the one hand, failure to take into account cultural identitary issues could result in significantly biased results in benefit transfer applications. On the other hand, policies aimed at conservation natural resources should consider the cultural context in which they will be implemented.
    Keywords: choice modelling; willigness to pay; valuation; identity
    JEL: Q51
    Date: 2008–07–03
  4. By: Andersson, Henrik (VTI); Hammitt, James (Harvard University, Center for Risk Analysis); Lindberg, Gunnar (VTI); Sundström, Kristian (Sw Inst for Food and Agric Economics)
    Abstract: Stated preference (SP) surveys attempt to obtain monetary values for non-market goods that reflect individuals' “true”' preferences. Numerous empirical studies suggest that monetary values from SP studies are sensitive to survey design and so may not reflect respondents' true preferences. This study examines the effect of time framing on respondents' willingness to pay (WTP) for car safety. We explore how WTP per unit risk reduction depends on the time period over which respondents pay and face reduced risk. Using data from a Swedish contingent valuation survey, we find that WTP is sensitive to time framing; estimates based on an annual scenario are about 30 to 70 percent higher than estimates from a monthly scenario.
    Keywords: Car safety; Contingent valuation; Double bound; Willingness to pay
    JEL: C52 D60 I10 Q51
    Date: 2008–07–03
  5. By: Thunström, Linda (Department of Economics)
    Abstract: This paper estimates the strength and heterogeneity across households in state dependence associated with breakfast cereal consumption, where positive state dependence implies habit persistence and negative state dependence implies variety-seeking in consumption. The analysis relies on a discrete choice model and finds that breakfast cereal consumption is generally highly habitual, but the degree of habit persistence exhibits heterogeneity across households. In addition, some households can be characterized as variety-seeking. The strength of habit persistence is similar across income and educational groups. The strength of habit persistence seems to be weaker for households with several adults and children compared to one-adult-households.
    Keywords: consumer choice; habit persistence; food consumption; preference heterogeneity
    JEL: C35 D12
    Date: 2008–07–07
  6. By: Laroque, Guy (CREST-INSEE); Salanié, Bernard (Columbia University)
    Abstract: There has been little empirical work evaluating the sensitivity of fertility to financial incentives at the household level. We put forward an identification strategy that relies on the fact that variation of wages induces variation in benefits and tax credits among "comparable households. We implement this approach by estimating a discrete choice model of female participation and fertility, using individual data from the French Labor Force Survey and a fairly detailed representation of the French tax-benefit system. Our results suggest that financial incentives play a notable role in determining fertility decisions in France, both for the first and for the third child. As an example, an unconditional child benefit with a direct cost of 0.3% of GDP might raise total fertility by about 0.3 point.
    Keywords: population, fertility, incentives, benefits
    JEL: J13 J22 H5
    Date: 2008–07
  7. By: Farina, Francesco (University of Siena); O'Higgins, Niall (University of Salerno); Sbriglia, Patrizia (University of Naples II)
    Abstract: Value Surveys may reveal well-behaved societies by the statistical treatment of the agents’ declarations of compliance with social values. Similarly, the results of experiments conducted on games with conflict of interest trace back to two important primitives of social capital – trust and reciprocity – which can be used to explain deviations from the Nash equilibrium and which lead to the optimal cooperative outcome. In this paper we attempt to elicit the true motive(s) underlying the behaviour of players in experimental trust and dictator games and suggest that the most informative utilization of surveys in this regard goes beyond the simple comparison of answers to a questionnaire with actual behaviour. Specifically the paper uses descriptive statistics and ordered probit models to analyse whether, and to what extent, answers to a questionnaire about attitudes to trusting and reciprocating predict subjects’ behaviour and, by comparing behaviour in Trust and Dictator Game, disentangles the strategic and altruistic motivations. We find no simple or direct correlation between behavioural trust or trustworthiness and attitudinal trust or disposition to reciprocate. However, dividing subjects according to attitudinal trust and trustworthiness, we observe that the link between the questionnaire and experimental sessions is more subtle than the mere correlation between average attitudes and average behaviours. The information conveyed by a survey appears to be much more powerful ex post – once the two motivational components have been separated out.
    Keywords: trust, reciprocity, experimental economics, ordered probit
    JEL: C72 C91 D63 D64
    Date: 2008–07
  8. By: Alexandros Dimitropoulos (Institute of Energy for South-East Europe, Athens, Greece); Andreas Kontoleon (University of Cambridge, Department of Land Economy)
    Abstract: This paper aims at analysing the factors which motivate communities to resist the installation of wind farms in their vicinity. To this end, the choice experiment methodology was employed in communities in two Greek Aegean Islands to assess the determinants of preferences towards different wind farm projects. Unlike other studies the willingness to accept welfare measure was adopted. The results of our analysis show that the conservation status of the area where the wind farms are to be installed, along with the governance characteristics of the planning procedure are the most important determinants of local community welfare in relation to wind farms. In contrast to other studies, we find that the physical attributes of wind farms appear to be of less relative importance from a local community welfare point of view. Implications for the EU’s future energy policy are drawn
    Keywords: wind farms; local acceptability; willingness to accept
    Date: 2008

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