nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒02‒28
six papers chosen by
Philip Yu
Hong Kong University

  1. Using Elicited Choice Probabilities to Estimate Random Utility Models: Preferences for Electricity Reliability By Blass, Asher; Lach, Saul; Manski, Charles
  2. The impact of information on patient preferences in different delivery patterns : a contingent valuation study of prescription versus OTC drugs By Karine Lamiraud; Konrade von Bremen; Cam Donaldson
  3. The implications of incorrect utility function specification for welfare measurement in choice experiments By Catalina M. Torres Figuerola; Nick Hanley; Antoni Riera Font
  4. Estimating the Employer Switching Costs and Wage Responses of Forward-Looking Engineers By Jeremy T. Fox
  5. Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program By Jason T. Abaluck; Jonathan Gruber
  6. 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: Blass, Asher; Lach, Saul; Manski, Charles
    Abstract: When data on actual choices are not available, researchers studying preferences sometimes pose choice scenarios and ask respondents to state the actions they would choose if they were to face these scenarios. The data on stated choices are then used to estimate random utility models, as if they are data on actual choices. Stated choices may differ from actual ones because researchers typically provide respondents with less information than they would have facing actual choice problems. Elicitation of choice probabilities overcomes this problem by permitting respondents to express uncertainty about their behavior. This paper shows how to use elicited choice probabilities to estimate random utility models with random coefficients and applies the methodology to estimate preferences for electricity reliability in Israel.
    Keywords: Choice probabilities; stated choices; WTP for electricity reliability
    JEL: C2 C25 C42 D12 L51 L94
    Date: 2008–11
  2. By: Karine Lamiraud; Konrade von Bremen; Cam Donaldson
    Abstract: Our analysis assessed the impact of information on patients' preferences in prescription vs over-the-counter (OTC) delivery systems. A contingent valuation (CV) study was implemented, randomly assigning 1594 people into the receipt of limited or extended information concerning new influenza drugs. In each information arm, people answered two questions: the first asked about willingness to pay (WTP) for the new prescription drug; the second asked about WTP for the same drug sold OTC. We show that WTP is higher for the OTC scenario and that the level of information plays a significant role in the valuation of the OTC scenario, with more information increasing the WTP. In contrast, the level of information has no impact on WTP for prescription medicine. Thus, for the kind of drug (i.e. safe, not requiring medical supervision) considered here, a switch to OTC status can be expected to be all the more beneficial as the patient is provided with more information concerning the capability of the drug. Conclusions: Our results shed some light on one of the most challenging issues that health policy makers are currently faced with, namely the threat of a bird flu pandemic. Drug delivery is a critical component of pandemic influenza preparedness. Furthermore, the congruence of our results with the agency and demand theories provides an important test of the validity of using WTP based on CV methods.
    Keywords: WTP, CV, OTC versus prescription, neuraminidase inhibitors, interval-censored regression
    Date: 2009–02
  3. By: Catalina M. Torres Figuerola (Centre de Recerca Econòmica (UIB · Sa Nostra)); Nick Hanley (Department of Economics, University of Stirling); Antoni Riera Font (Centre de Recerca Econòmica (UIB · Sa Nostra))
    Abstract: Despite the vital role of utility functional form in welfare measurement, the implications of working with incorrect utility specifications have not been examined in the choice experiments literature. This paper addresses the importance of the specification of both non-monetary attributes and the marginal utility of income. Monte Carlo experiments have been conducted wherein different attribute specifications and assumptions for the Cost parameter -that is, different functional forms of utility- have been assumed to generate simulated choices on which Multi-Nomial Logit and Mixed Logit models have been estimated under correct and incorrect assumptions about the true, underlying utility function. The inferred values have been compared with the true ones directly calculated from the true utility specifications. Results show that working with simple experimental designs and continuous-linear specifications makes attribute specification irrelevant for measuring attribute marginal values regardless of the true effects the attribute has on utility.
    Keywords: Utility specification, attributes, welfare measurement, accuracy, efficiency, choice experiments, Monte Carlo analysis
    Date: 2008
  4. By: Jeremy T. Fox (University of Chicago and NBER)
    Abstract: I estimate the relative magnitudes of worker switching costs and whether the employer switching of experienced engineers responds to outside wage offers. Institutional features imply that voluntary turnover dominates switching in the market for Swedish engineers from 1970–1990. I use data on the allocation of engineers across a large fraction of Swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic programming, discrete choice model of voluntary employer choice. The differentiated firms are modeled in employer characteristic space and each firm has its own age wage profile. I find that a majority of engineers have moderately high switching costs and that a minority of experienced workers are responsive to outside wage offers. Younger workers are more sensitive to outside wage offers than older workers.
    Keywords: monopsony papers
    Date: 2009–01
  5. By: Jason T. Abaluck; Jonathan Gruber
    Abstract: The Medicare Part D Prescription Drug Plan represents the most significant privatization of the delivery of a public insurance benefit in recent history, with dozens of private insurers offering a wide range of products with varying prices and product features; the typical elder had a choice of roughly 40 stand-alone drug plans. In this paper we evaluate the choices of elders across this wide array of Part D options using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We first document that the vast majority of elders are choosing plans that are not on the “efficient portfolio†of plan choice in the sense that an alternative plan offers better risk protection at a lower cost. We then estimate several discrete choice models to document three dimensions along which elders are making choices which are inconsistent with optimization under full information: elders place much more weight on plan premiums than they do on expected out of pocket costs; they place almost no value on variance reducing aspects of plans; and they value plan financial characteristics beyond any impacts on their own financial expenses or risk.These findings are robust to a variety of specifications and econometric approaches. We develop an "adjusted" revealed preference approach that combines data from consumer choices with ex ante restrictions on preferences, and find that in a partial equilibrium setting, restricting the choice set to the three lowest average cost options would have likely raised welfare for elders under the program.
    JEL: I11 I18
    Date: 2009–02
  6. By: Andreas Freytag (Friedrich-Schiller-University Jena); Jens J. Krüger (Technical University Darmstadt); Daniel Meierrieks (University of Paderborn); Friedrich Schneider (Johannes Kepler University of Linz)
    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: 2009–01

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.