nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒02‒14
four papers chosen by
Philip Yu
Hong Kong University

  1. Unobserved Heterogeneity in the Binary Logit Model with Cross-Sectional Data and Short Panels: A Finite Mixture Approach By Anders Holm; Mads Meier Jæger; Morten Pedersen
  2. Certainty calibration in contingent valuation - exploring the within-difference between dichotomous choice and open-ended answers as a certainty measure By Sund, Björn
  3. Sensitivity to scope in contingent valuation – introducing a flexible community analogy to communicate mortality risk reductions By Sund, Björn
  4. The Origins of Terrorism - Cross-Country Estimates on Socio-Economic Determinants of Terrorism By Andreas Freytag; Jens J. Krüger; Daniel Meierrieks; Friedrich Schneider

  1. By: Anders Holm (Department of Sociology, University of Copenhagen); Mads Meier Jæger (Danish National Centre for Social Research, Copenhagen); Morten Pedersen (Department of Sociology, University of Copenhagen)
    Abstract: This paper proposes a new approach to dealing with unobserved heterogeneity in applied research using the binary logit model with cross-sectional data and short panels. Unobserved heterogeneity is particularly important in non-linear regression models such as the binary logit model because, unlike in linear regression models, estimates of the effects of observed independent variables are biased even when omitted independent variables are uncorrelated with the observed independent variables. We propose an extension of the binary logit model based on a finite mixture approach in which we conceptualize the unobserved heterogeneity via latent classes. Simulation results show that our approach leads to considerably less bias in the estimated effects of the independent variables than the standard logit model. Furthermore, because identification of the unobserved heterogeneity is weak when the researcher has cross-sectional rather than panel data, we propose a simple approach that fixes latent class weights and improves identification and estimation. Finally, we illustrate the applicability of our new approach using Canadian survey data on public support for redistribution.
    Keywords: binary logit model; unobserved heterogeneity; latent classes; simulation
    Date: 2008–11
  2. By: Sund, Björn (Department of Business, Economics, Statistics and Informatics)
    Abstract: Hypothetical bias is a serious problem of stated preference techniques. The certainty approach calibrates answers by assessing different weights to remedy respondents’ valuation. However, very little research has been done to find a link between economic theory and empirical treatment of uncertainty through certainty calibration. We use a combination of dichotomous choice (DC) followed by an open-ended (OE) question to examine the relation between the degree of confidence and the distance between the DC bid and the OE answer. The results show that the OE bid difference is significantly correlated to the certainty level in one of our two contingent valuation (CV) surveys, with the probability of stating the highest confidence value increasing between 5-19 percent per SEK 1000 (~$170/€106) that the answer to the OE question and the bid differ. The second CV survey shows a significant relation for the no-responders.
    Keywords: Contingent valuation; Hypothetical bias; Calibration; Certainty approach; Value of a statistical life; Traffic safety; Cardiac arrest
    JEL: H43 I18 R41
    Date: 2009–02–03
  3. By: Sund, Björn (Department of Business, Economics, Statistics and Informatics)
    Abstract: Validity in contingent valuation (CV) is often tested through the sensitivity of estimated willingness to pay (WTP) to the size or quality of a good or service (‘more is better’ and near proportionality). We investigate the performance of two communication aids (a flexible community analogy and an array of dots) in valuing mortality risk reductions for out-of-hospital cardiac arrest. Our results do not support the prediction of expected utility theory, i.e. that WTP for a mortality risk reduction increases with the amount of risk reduction (weak scope sensitivity), for any of the communication aids. In fact, the array of dots even shows a decreasing WTP when the risk reduction is larger. We find some evidence that level of education influences how communication aids are perceived. Also, a larger municipal population results in lower WTP which may signal problems with strategic bias.
    Keywords: Contingent valuation; Willingness to pay; Validity; Sensitivity to scope; Risk communication; Community analogy; Cardiac arrest
    JEL: D83 I18
    Date: 2009–02–03
  4. By: Andreas Freytag (Friedrich-Schiller-University Jena, Department of Economics, Germany); Jens J. Krüger (Technical University Darmstadt, Department of Law and Economics, Germany); Daniel Meierrieks (University of Paderborn, Department of Economics, Germany); Friedrich Schneider (Johannes Kepler University of Linz, Department of Economics, Austria)
    Abstract: To expand our knowledge about an appropriate anti-terror strategy, it is indispensable to assess the underlying causes of terror. We examine social and economic conditions in the country of origin of terrorist attacks, claiming that low opportunity costs of terror, e.g. approximated as slow growth and poor institutions raise the propensity of terror and the willingness in the population to support terror. Using a mixed effects Poisson regression model, we are able to show that unfortunate socio-economic conditions in a country are suitable to reduce the opportunity cost for potential terrorists and increase the likelihood of terrorist attacks originating from a specific country. Interestingly, this effect is relevant after a certain level of development has been reached. We therefore distinguish between the OECD, Europe and Islamic countries.
    Keywords: terror attacks, openness, discrete choice analysis, institutions
    JEL: P16 F15 C25
    Date: 2009–02–01

This nep-dcm issue is ©2009 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.