nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒03‒28
twenty papers chosen by
Philip Yu
Hong Kong University

  1. Use of Discrete Choice Experiments in health economics: An update of the literature By Rochelle Guttmann; Ryan Castle; Denzil G. Fiebig
  2. Progressive knowledge revealed preferences and sequential rationalizability By Nicolas Houy
  3. Understanding farmers' perceptions and adaptations to climate change and variability: The case of the Limpopo Basin, South Africa By Gbetibouo, Glwadys Aymone
  4. The Relevance of Irrelevant Alternatives: An experimental investigation of risky choices By Holgar Müller
  5. Choice-Based Network Revenue Management under Weak Market Segmentation By Joern Meissner; Arne Strauss
  6. Analyzing preferences ranking when there are too many alternatives. By Lam, K.Y.; Koning, A.J.; Franses, Ph.H.B.F.
  7. Incorporating responsiveness to marketing efforts in brand choice modelling By Fok, D.; Paap, R.; Franses, Ph.H.B.F.
  8. Location differences in communities’ preferences for environmental improvements in selected NSW catchments: A Choice Modelling approach By Mazur, Kasia; Bennett, Jeff
  9. Policy responses to invasive native species: issues of social and private benefits and costs By Farquharson, Bob; Kelly, Jason; Welsh, Pam; Mazur, Kasia; Bennett, Jeff
  10. Efficiency benefits of choice model experimental design updating: a case study By Kerr, Geoffrey; Sharp, Basil
  11. Integrating economic values and catchment modelling By Kragt, Marit E.; Bennett, Jeff W.
  12. Biased estimates in discrete choice models: the appropriate inclusion of psychometric data into the valuation of recycled wastewater By Gibson, Fiona L.; Burton, Michael
  13. Valuation of Water Quality Improvements in the Karapiro Catchment: A Choice Modelling Approach By Marsh, Dan; Baskaran, Ramesh
  14. Establishing a benefits transfer database for biosecurity decision making an indigenous biodiversity By Bell, Brian; Cudby, Charlotte; Yap, Michael
  15. Using choice experiments to value river and estuary health in Tasmania with individual preference heterogeneity By Kragt, Marit E.; Bennett, J.W.
  16. Urban Water Restrictions: Unbundling Motivations, Compliance and Policy Viability By Cooper, Bethany; Crase, Lin
  17. Preferences, Norms and Constraints in farmers’ agro-ecological choices. Case study using a choice experiments survey in the Rhone River Delta, France By Jaeck, M.; Lifran, Robert
  18. The Policy Relevance of Choice Modelling: An Application to the Ningaloo and Proposed Capes Marine Parks By McCartney, Abbie
  19. Household perceptions of climate change and preferences for mitigation action: the case of the Carbon Pollution Reduction Scheme in Australia By Akter, Sonia; Bennett, Jeff
  20. Testing Different Types of Benefit Transfer in Valuation of Ecosystem Services: New Zealand Winegrowing Case Studies By Baskaran, Ramesh; Cullen, Ross; Culumbo, Sergio

  1. By: Rochelle Guttmann; Ryan Castle; Denzil G. Fiebig (CHERE, University of Technology, Sydney)
    Abstract: The vast majority of stated preference research in health economics has been conducted in the random utility model paradigm using discrete choice experiments (DCEs). Ryan and Gerard (2003) have reviewed the applications of DCEs in the field of health economics. We have updated this initial work to include studies published between 2001 and 2007. Following the methods of Ryan and Gerard, we assess the later body of work, with respect to the key characteristics of DCEs such as selection of attributes and levels, experimental design, preference measurement, estimation procedure and validity. Comparisons between the periods are undertaken in order to identify any emerging trends.
    Keywords: discrete choice experiments, health economics
    JEL: I10
    Date: 2009–03
  2. By: Nicolas Houy (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: In this paper, we study the link between choices derived from monotonous set-dependent preferences and sequential rationalizability. This link is quite natural since choices derived from monotonous set-dependent preferences (introduced in [Houy, 2008b]) are characterized by a strong axiom of revealed preferences whereas sequentially rationalizable choice functions (introduced in [Manzini and Mariotti, 2007]) are characterized by a weak axiom of revealed preferences.
    Keywords: Weak/Strong axioms of revealed preferences, sequential rationalizability.
    Date: 2008–12
  3. By: Gbetibouo, Glwadys Aymone
    Abstract: "Climate change is expected to have serious environmental, economic, and social impacts on South Africa. In particular, rural farmers, whose livelihoods depend on the use of natural resources, are likely to bear the brunt of adverse impacts. The extent to which these impacts are felt depends in large part on the extent of adaptation in response to climate change. This research uses a “bottom-up” approach, which seeks to gain insights from the farmers themselves based on a farm household survey. Farm-level data were collected from 794 households in the Limpopo River Basin of South Africa for the farming season 2004–2005. The study examines how farmer perceptions correspond with climate data recorded at meteorological stations in the Limpopo River Basin and analyzes farmers' adaptation responses to climate change and variability. A Heckman probit model and a multinomial logit (MNL) model are used to examine the determinants of adaptation to climate change and variability. The statistical analysis of the climate data shows that temperature has increased over the years. Rainfall is characterized by large interannual variability, with the previous three years being very dry. Indeed, the analysis shows that farmers' perceptions of climate change are in line with the climatic data records. However, only approximately half of the farmers have adjusted their farming practices to account for the impacts of climate change. Lack of access to credit was cited by respondents as the main factor inhibiting adaptation. The results of the multinomial logit and Heckman probit models highlighted that household size, farming experience, wealth, access to credit, access to water, tenure rights, off-farm activities, and access to extension are the main factors that enhance adaptive capacity. Thus, the government should design policies aimed at improving these factors. " from authors' abstract
    Keywords: Climate change, Climate variability, Perception, Adaptation, Agriculture,
    Date: 2009
  4. By: Holgar Müller (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Das Pricesensitivity-Meter (PSM) ist ein in der praktischen Preisforschung weit verbreitetes Instrument zur Erfassung der Preiswahrnehmung sowie zur Identifikation von Preisschwellen und Referenzpreisen. In der wissenschaftlichen Literatur wird das PSM jedoch insbesondere infolge seiner direkten Abfragetechnik kritisiert und von einem Einsatz prinzipiell abgeraten. Gleichwohl fehlen bislang sowohl produktgruppenübergreifende Erfahrungsberichte als auch aussagekräftige Langzeitstudienstudien zu diesem Thema. Vor diesem Hintergrund untersucht der vorliegende Beitrag die grundsätzliche Qualität und Konsistenz von PSM-Messungen. Hierzu wurde über einen Zeitraum von insgesamt sechs Jahren eine aus vier äquidistanten Wellen bestehende Längsschnittmessung im nationalen Markt für Zigaretten realisiert. Die PSM-Ergebnisse bestätigen dabei die theoretisch zu erwartenden dynamischen Anpassungsprozesse subjektiver Preisakzeptanzbereiche und Referenzpreise an objektive Markpreise.
    Keywords: Preiswahrnehmung, Referenzpreis, Pricesensitivity-Meter, PSM
    Date: 2008–11
  5. By: Joern Meissner (Department of Management Science, Lancaster University Management School); Arne Strauss (Department of Management Science, Lancaster University Management School)
    Abstract: We present improved network revenue management methods that assume customers to choose according to the multinomial logit choice model with the specific feature that the sets of considered products of the different customer segments are allowed to overlap. This approach can be used to model markets with weak segmentation: For example, high-yield customer segments can be modelled to also consider low yield products intended for low-yield customers, introducing implicit buy-down behavior into the model. The arising linear programs are solved using column generation and involves NP-hard mixed integer sub problems. However, we propose efficient polynomial-time heuristics that considerably speed-up the solution process. We numerically investigate the effect of varying the intensity of overlap on the respective policies and find that improvements are most pronounced in the case of high overlap, rendering the method highly interesting for weakly segmented market applications.
    Keywords: revenue management, dynamic programming, optimal control, applications, approximate
    JEL: C61
    Date: 2009–03
  6. By: Lam, K.Y.; Koning, A.J.; Franses, Ph.H.B.F. (Erasmus Econometric Institute)
    Abstract: Consumer preferences can be measured by rankings of alternatives. When there are too many alternatives, this consumer task becomes complex. One option is to have consumers rank only a subset of the available alternatives. This has an impact on subsequent statistical analysis, as now a large amount of ties is observed. We propose a simple methodology to perform proper statistical analysis in this case. It also allows to test whether (parts of the) rankings are random or not. An illustration shows its ease of application.
    Keywords: ranking;preferences;ties
    Date: 2008–03–18
  7. By: Fok, D.; Paap, R.; Franses, Ph.H.B.F. (Erasmus Econometric Institute)
    Abstract: We put forward a brand choice model with unobserved heterogeneity that concerns responsiveness to marketing efforts. We introduce two latent segments of households. The first segment is assumed to respond to marketing efforts while households in the second segment do not do so. Whether a specific household is a member of the first or the second segment at a specific purchase occasion is described by household-specific characteristics and characteristics concerning buying behavior. Households may switch between the two responsiveness states over time. When comparing the performance of our model with alternative choice models that account for various forms of heterogeneity for tree different datasets, we find better face validity of our parameters. Our model also forecasts better.
    Keywords: marketing-instrument effectiveness;heterogeneity;multinomial probit;mixtures
    Date: 2008–08–21
  8. By: Mazur, Kasia; Bennett, Jeff
    Abstract: A choice modelling (CM) study was conducted to elicit household willingness to pay (WTP) for improvements in environmental quality in three NSW catchments (Lachlan, Namoi and Hawkesbury-Nepean). This paper presents results of research designed to investigate variations in WTP across different communities including local residents, distant/urban and distant/rural residents. Nine split samples were established to test for ‘location effect’. The analysis involved both conditional logit and randomparameters logit models.
    Keywords: Choice modelling, Location effects, Non-market valuation, Catchment planning, Environment 1,
    Date: 2009
  9. By: Farquharson, Bob; Kelly, Jason; Welsh, Pam; Mazur, Kasia; Bennett, Jeff
    Abstract: Farm and catchment managers in Australia face decisions about controlling invasive native species (or scrub) which may infest agricultural land. The treatment of this land to remove the infestation and re-establish native pastures is likely to be expensive for landholders. Yet there are potential social benefits from such remediation and so a policy question arises of what to do to about facilitating such change. New South Wales state government legislation addresses this issue through regulations, and the Catchment Management Authorities are responsible for administering public funds to achieve associated natural resource improvements. However, the extent of the private costs and social benefits associated with such changes are not known, which precludes benefit-cost analyses using the traditional welfare economics framework. This paper reports results of a social and private economic analysis of the impacts of a typical infestation remediation decision. We show that for the landholder the private costs exceed the benefits achieved from increased livestock productivity. However, there are social benefits expressed by the willingness to pay by members of the local catchment community for improvements in native vegetation and biodiversity. When these social benefits are included, the economic analysis shows a positive social net benefit. This raises questions of how to reconcile the public and private accounting, and whether any changes to policies, regulations or procedures for natural resource management in New South Wales are warranted.
    Keywords: Invasive native scrub, environmental values, choice modelling, financial, economic, Namoi catchment,
    Date: 2009
  10. By: Kerr, Geoffrey; Sharp, Basil
    Abstract: Efficient experimental designs offer the potential to reduce confidence intervals for parameters of interest in choice models, or to reduce required sample sizes. C-efficiency recognises the salience of willingness to pay estimates rather than utility function parameters. This study reports on a choice model application that incorporated updated statistical designs based on initial responses in order to maximise C-efficiency. The revised design delivered significant improvements.
    Keywords: experimental design, choice experiment, efficiency,
    Date: 2009
  11. By: Kragt, Marit E.; Bennett, Jeff W.
    Abstract: Integrated catchment policies are widely used to manage natural resources in Australian catchments. Decision support tools available to aid integrated catchment management are often limited in their integration of environmental processes with socio-economic systems. Fully integrated models are required to support assessments of the environmental and economic trade-offs of catchment management changes. A Bayesian Network (BN) model is demonstrated to provide a suitable approach to integrate environmental modelling with economic valuation. The model incorporates hydrological, ecological and economic models for the George catchment in Tasmania. Information about the non-market costs and benefits of environmental changes is elicited using Choice Experiments, allowing an assessment of the efficiency of alternative management scenarios.
    Keywords: Integrated catchment modelling, Bayesian networks, Uncertainty, Environmental values, Non-market valuation, Choice Modelling.,
    Date: 2009
  12. By: Gibson, Fiona L.; Burton, Michael
    Abstract: The introduction of measurement bias in parameter estimates into non-linear discrete choice models, as a result of using factor analysis, was identified by Train et al. (1987). They found that the inclusion of factor scores, used to represent relationships amongst like variables, into a subsequent discrete choice models introduced measurement bias as the measurement error associated with each factor score is excluded. This is an issue for non-market valuation given the increase in popularity of including psychometric data, such as primitive beliefs, attitudes and motivations, in willingness to pay estimates. This study explores the relationship between willingness to pay and primitive beliefs through a case study eliciting Perth community values for drinking recycled wastewater. The standard discrete decision model, with sequential inclusion of factor scores, is compared to an equivalent discrete decision model, which corrects for the measurement bias by simultaneously estimating the underlying latent variables using a measurement model. Previous research has focused on the issue of biased parameters. Here we also consider the implications for willingness to pay estimates.
    Keywords: discrete choice models, attitudes, factor analysis, measurement models, recycled wastewater,
    Date: 2009
  13. By: Marsh, Dan; Baskaran, Ramesh
    Abstract: Water pollution is widely considered to be one of the most important environmental issues facing New Zealand. Waikato region residents have reported that water pollution is easily their most important environmental concern in each of four attitude surveys conducted by Environment Waikato. Technical and regulatory mechanisms to reduce water pollution, especially non-point source pollution from agriculture are the focus of an intensive research effort both in New Zealand and internationally. This work should assist farmers and policy makers to identify the most cost effective options for achieving any given improvement in water quality. Research described in this paper aims to complement existing research projects by developing appropriate methodology for valuation of water quality improvements in New Zealand. It is envisaged that this type of information will inform the policy process by allowing decision makers to consider both the costs and the benefits of different levels of water quality improvements. This paper describes the first phase focussed on the Karapiro catchment which used focus groups and choice modelling in order to understand and quantify the value of water quality improvements in the catchment.
    Keywords: Water Quality, Non Market Valuation, Choice Modelling,
    Date: 2009
  14. By: Bell, Brian; Cudby, Charlotte; Yap, Michael
    Abstract: An imbalance of quantitative information on pest and disease impacts hampers biosecurity decision-making; there is relatively good information about impacts on industry, but relatively poor information about how society values the impacts on indigenous biodiversity. A benefits transfer process based on a database of choice experiments could help to redress this imbalance. This paper: briefly reviews four choice experiments that will be the foundation of a database; reviews benefit transfer literature; and sets out framework ideas for a Decision Support System (DSS), which will incorporate biodiversity values via a process for benefit transfer to facilitate more informed biosecurity decisions.
    Keywords: Benefit transfer, database, biosecurity, biodiversity, decision support system,
    Date: 2009
  15. By: Kragt, Marit E.; Bennett, J.W.
    Abstract: Choice experiments (CE – otherwise known as Choice Modelling) have become a widespread approach to environmental valuation in Australia, with many examples assessing the tradeoffs between river catchment management and socio-economic impacts. There is, however, limited information on the values of Australian estuaries. Furthermore, none of the existing valuation studies address catchment management changes in Tasmania. The CE study reported in this paper aims to elicit community preferences for the protection of the rivers and estuary of the George catchment in north-eastern Tasmania. Results from conditional and mixed logit models show that respondents are, on average, willing to pay between $2.47 and $4.46 for a km increase in native riverside vegetation and between $9.35 and $10.97 per species for the protection of rare native plants and animals, ceteris paribus. The results are ambiguous about respondents’ preferences for estuary seagrass area. This study further shows significant differences between logit models when accounting for individual heterogeneity and repeated choices made by individual respondents.
    Keywords: River condition, Estuary condition, Environmental values, Non-market valuation, Choice Experiments, Tasmania,
    Date: 2009
  16. By: Cooper, Bethany; Crase, Lin
    Abstract: The welfare costs of urban water restrictions are now well recognised, even if not yet quantified with precision (see, for example, Edwards 2008). Notwithstanding the costs that attend this form of intervention, governments have proven reluctant to abandon them, at least until additional infrastructure is in place. Accordingly, some form of behavioural constraint over the use of water is now applied in almost every major urban centre in Australia. Against this background there is value in understanding the motivations for individuals to comply with water restrictions. There is also much to be gained from developing an appreciation of the preferences for different restriction regimes. There is also scope to address wider politico-economic considerations as part of this analysis. This paper considers some of these issues by presenting the results of a choice modelling and contingent valuation study drawing data from New South Wales and Victoria. The study also embodies data from water-rich and water-poor communities in metropolitan and regional settings.
    Keywords: Urban water, water restrictions, choice modelling, contingent valuation, compliance behaviour,
    Date: 2009
  17. By: Jaeck, M.; Lifran, Robert
    Abstract: The aim of this paper is to elicit the sensitivity of farmers to payments for agro-environmental services in a context of strong agro-ecological and policy constraints. We present results from a choice experiment survey performed among the whole population of agricultural decision-makers (104) in the Camargue area. Several econometric models have been estimated, the most significant being the Latent Classes one. The estimated parameters of the utility function, together with the parameter associated with the monetary attribute provided the monetary value of each relevant agro-ecological attribute and the associated outcomes (average and risk yield).
    Keywords: Agricultural Technological Choices, Agro-environmental measures, Policy Instruments design, Choice Experiments, Sample Selection Model, Latent classes Model, Random Parameter Model, Rice production, Labelling, Organic farming,
    Date: 2009
  18. By: McCartney, Abbie
    Abstract: One issue surrounding the use of Choice Modelling (CM) in policy is whether public and expert preferences diverge regarding particular environmental attributes. To investigate this issue two case studies use CM to value ecological attributes for the Ningaloo and proposed Capes marine parks in Western Australia. Public and expert populations are sampled, with consideration of information effects. Attention is also given to whether policy relevance can be improved by considering not only desired outcomes of the hypothetical policy options in the CM exercise, but also the management process used to achieve these outcomes. Preliminary results of the public sample identify significant impacts of both information and management process effects.
    Keywords: Choice modelling, public, experts, preferences, marine parks, non-use values.,
    Date: 2009
  19. By: Akter, Sonia; Bennett, Jeff
    Abstract: The study aims to reveal Australian households’ perceptions of climate change and their preferences for climate change mitigation actions. A web-based survey was conducted in November 2008 in which about 600 New South Wales households were asked for their willingness to bear extra household expenditure to support the ‘Carbon Pollution Reduction Scheme (CPRS)’ as proposed by the Australian government. The Contingent Valuation Method (CVM), a widely used non-market valuation technique, was applied using the single bounded dichotomous choice elicitation format. Results of the study demonstrate that, currently, there is a positive demand for climate change mitigation action in Australia. The main motivation for this positive demand stems from a desire to avoid climate change. However, society’s willingness to pay (WTP) for climate change mitigation is shown to be significantly curbed by uncertainties regarding the extent of climate change and the effectiveness of climate change policy. Global cooperation (major greenhouse gas emitting countries implementing similar scheme) plays an important role in determining Australian households’ support for the CPRS. Only when cooperation is assumed, do the benefits of the CPRS, as estimated by respondents’ WTP, exceed its costs.
    Keywords: Contingent valuation, climate change, Carbon Pollution Reduction Scheme, willingness to pay, uncertainty, Australia,
    Date: 2009
  20. By: Baskaran, Ramesh; Cullen, Ross; Culumbo, Sergio
    Abstract: Most ecosystem services (ES) are neither priced nor marketed. Resource managers may fail to take into account degradation of unpriced services in their resource management decisions. Being able to estimate values for ES is fundamental to designing policies to induce resource users to provide (or improve) ES at levels that are acceptable to society. Conducting ecosystem valuation via non-market methods is costly and time consuming. Benefit Transfer (BT) using choice modeling (CM) is a potentially cost-effective method for valuing ES by transferring information from existing valuation studies (and study sites) to a target area of interest (policy sites). The prime objective of this paper is to examine the validity of BT and hence whether it is feasible to conduct the transfer process and assist policy making. The paper focuses on the environmental impact of winegrowing practices in two New Zealand winegrowing regions. The two sites, Hawke’s Bay and Marlborough, have similar environmental issues and attributes but are geographically separated. The study estimates WTP and Compensating Surplus (CS) for ES applying CM and, subsequently, given the preferences of respondents across sites and populations, tests the transferability of unadjusted value transfer (WTP) and benefits function (CS) assessing four different types of BT.
    Keywords: Benefit transfer, choice modeling, New Zealand winegrowing, ecosystem services,
    Date: 2009

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.
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