nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒04‒05
five papers chosen by
Philip Yu
Hong Kong University

  1. A Bayesian mixed logit-probit model for multinomial choice By Martin Burda; Matthew Harding; Jerry Hausman
  2. Rating Assignments: Lessons from International Banks By Guglielmo Maria Caporale; Roman Matousek; Chris Stewart
  3. Climate Policy Measures: What do people prefer ? By Cole, Scott; Brännlund, Runar
  4. Strategic Voting and Multinomial Choice In US Presidential Elections By Myoung-jae Lee; Sung-jin Kang
  5. Accounting for Incomplete Pass-Through By Nakamura, Emi; Zerom, Dawit

  1. By: Martin Burda; Matthew Harding (Institute for Fiscal Studies and Stanford University); Jerry Hausman (Institute for Fiscal Studies and Massachusetts Institute of Technology)
    Abstract: <p><p><p>In this paper we introduce a new flexible mixed model for multinomial discrete choice where the key individual- and alternative-specific parameters of interest are allowed to follow an assumption-free nonparametric density specification while other alternative-specific coefficients are assumed to be drawn from a multivariate normal distribution which eliminates the independence of irrelevant alternatives assumption at the individual level. A hierarchical specification of our model allows us to break down a complex data structure into a set of submodels with the desired features that are naturally assembled in the original system. We estimate the model using a Bayesian Markov Chain Monte Carlo technique with a multivariate Dirichlet Process (DP) prior on the coefficients with nonparametrically estimated density. We employ a "latent class" sampling algorithm which is applicable to a general class of models including non-conjugate DP base priors. The model is applied to supermarket choices of a panel of Houston households whose shopping behavior was observed over a 24-month period in years 2004-2005. We estimate the nonparametric density of two key variables of interest: the price of a basket of goods based on scanner data, and driving distance to the supermarket based on their respective locations. Our semi-parametric approach allows us to identify a complex multi-modal preference distribution which distinguishes between inframarginal consumers and consumers who strongly value either lower prices or shopping convenience. </p></p></p>
    Date: 2008–08
  2. By: Guglielmo Maria Caporale; Roman Matousek; Chris Stewart
    Abstract: This paper estimates ordered logit and probit regression models for bank ratings which also include a country index to capture country-specific variation. The empirical findings provide support to the hypothesis that the individual international bank ratings assigned by Fitch Ratings are underpinned by fundamental quantitative financial analyses. Also, there is strong evidence of a country effect. Our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007 - 2008 banking crisis based upon publicly available information. However, our results also suggest that quantitative models are not likely to be able to predict ratings with complete accuracy. Furthermore, we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability.
    Keywords: International banks, ratings, ordered choice models, country index
    JEL: C25 C51 C52 G21
    Date: 2009
  3. By: Cole, Scott (Department of Economics, Umeå University); Brännlund, Runar (Department of Economics, Umeå University)
    Abstract: Several countries are responding to the climate change threat with various policy measures (e.g., taxes, permit trading, regulations, information campaigns, etc). While the effectiveness of different measures (instruments) has been studied extensively, very little research exists related to public preferences for alternative measures. This paper describes the results of a pilot study to determine whether a choice experiment might be a feasible approach for measuring preferences for carbon dioxide reduction policies, while ensuring careful consideration of the budget constraint facing households. We focus on estimating the public’s marginal utilities and implicit prices for a select group of attributes that describe climate policy measures in general. The results from the pilot study indicate that when respondents trade-off the cost of alternative and unlabeled policy measures, they are willing to pay for those that encourage (1) the development of environmentally-friendly technology and (2) climate awareness among the Swedish population. Finding (1) could be interpreted to mean public support for market-based measures (e.g., taxes and permit trading) while finding (2) seems to support the use of information in the design of climate policy measures in order to encourage carbon dioxide-reducing behavior. Finally, our pilot study assumed that respondents’ preferences for the cost-sharing burden (equity) of measures might be defined in terms of an individual’s ability to pay. Given this assumption, our results indicate weak preferences for non-regressive cost distribution, but progressive cost distribution had no effect on choice. We offer several possible conclusions from this preliminary investigation into climate policy preferences.
    Keywords: market-based mechanisms; information effects; equity; choice experiment; preferences
    JEL: Q48 Q50 Q54 Q55
    Date: 2009–04–01
  4. By: Myoung-jae Lee (Department of Economics, Korea University, Seoul, South Korea); Sung-jin Kang (Department of Economics, Korea University, Seoul, South Korea)
    Abstract: Ross Perot was a relatively viable third party candidate in the 1992 US presidential election, but he was not any more in the 1996 election. This provides a good opportunity to analyze strategic voting behavior?voting for a candidate not most preferred by the voter?in the US presidential elections with panel data drawn from NES (National Election Studies). First, the 1992 election is analyzed with multinomial choice estimators. Second, using the estimates, each individual¡¯s choice is predicted for the 1996 election. Third, those who were predicted to vote for Perot in 1996 but did not are identified as strategic voters and their profile is drawn. In addition to the main task of analyzing the strategic voting behavior, this paper does two additional tasks. First, analyzing the 1992 data with multinomial choice estimators, t is found that the following variables mattered significantly for the US presidential election: respondent and candidate ideology, personal finance, age, education, income, sex, abortion stance, health insurance policy, and welfare program policy. Second, critical mistakes in the literature in applying multinomial probit to election data are pointed.
    Keywords: strategic voting, presidential election, multinomial logit, multinomial probit
    Date: 2009
  5. By: Nakamura, Emi; Zerom, Dawit
    Abstract: Recent theoretical work has suggested a number of potentially important factors in causing incomplete pass-through of exchange rates to prices, including markup adjustment, local costs and barriers to price adjustment. We empirically analyze the determinants of incomplete passthrough in the coee industry. The observed pass-through in this industry replicates key features of pass-through documented in aggregate data: prices respond sluggishly and incompletely to changes in costs. We use microdata on sales and prices to uncover the role of markup adjustment, local costs, and barriers to price adjustment in determining incomplete pass-through using a structural oligopoly model that nests all three potential factors. The implied pricing model explains the main dynamic features of short and long-run pass-through. Local costs reduce long-run pass-through by a factor of 59% relative to a CES benchmark. Markup adjustment reduces pass-through by an additional factor of 33%, where the extent of markup adjustment depends on the estimated \super-elasticity" of demand. The estimated menu costs are small (0:23% of revenue) and have a negligible eect on long-run pass-through, but are quantitatively successful in explaining the delayed response of prices to costs. We nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level.
    Keywords: exchange rate pass-through; menu costs; discrete choice model
    JEL: L16 L11 F10
    Date: 2008–11

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