nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2010‒04‒17
eleven papers chosen by
Philip Yu
Hong Kong University

  1. A discrete choice model with endogenous attribute attendance By Arne Risa Hole
  2. Effects of alternative elicitation formats in discrete choice experiments By Gabriela Scheufele; Jeff Bennett Author-Person pbe391
  3. The Effects of a Provision Rule in Choice Modelling By Kasia Mazur; Jeff Bennett
  4. Valuing the control of red imported fire ants in Australia using choice modelling By John Rolfe; Jill Windle
  5. Some aspects of random utility, extreme value theory and multinomial logit models By Andersson, Jonas; Ubøe, Jan
  6. Tax or no tax? Preferences for climate policy attributes By Brännlund, Runar; Persson, Lars
  7. Endogenous semiparametric binary choice models with heteroscedasticity By Stefan Hoderlein
  8. IV models of ordered choice By Andrew Chesher; Konrad Smolinski
  9. Using discrete choice experiments for environmental valuation. By David Hoyos Ramos
  10. Testing Independence Conditions in the Presence of Errors and Splitting Effects By Michael H. Birnbaum; Ulrich Schmidt; Miriam D. Schneider
  11. Common Consequence Effects with Pricing Data By Ulrich Schmidt; Stefan T. Trautmann

  1. By: Arne Risa Hole (Department of Economics, The University of Sheffield)
    Abstract: This paper develops a discrete choice model in which the decision to consider an attribute in the choice process is modelled endogenously. In an application to patients' choice of general practitioner it is found that the proposed model outperforms the standard logit model in terms of goodness of fit and produces substantially different estimates of willingness to pay.
    Keywords: discrete choice, attribute attendance
    JEL: C25
    Date: 2010–02
  2. By: Gabriela Scheufele (Crawford School of Economics and Government, the Australian National University); Jeff Bennett Author-Person pbe391 (Crawford School of Economics and Government, the Australian National University)
    Abstract: An elicitation format prevalently applied in DCE is to offer each respondent a sequence of choice tasks containing more than two choice options. However, empirical evidence indicates that repeated choice tasks influence choice behavior through institutional learning, fatigue, value learning, and strategic response. The study reported in this paper employs a split sample approach based on field surveys using a single binary elicitation format with a majority vote implementation as the baseline to expand the research on effects of sequential binary DCE formats. We provide evidence for effects caused by institutional learning and either strategic behavior or value learning after respondents answered repeated choice questions. However, we did not find any indications for strategic behavior caused by awareness of having multiple choices. The choice between a sequential and a single elicitation format may thus imply a trade-off between decreased choice accuracy and potentially increased strategic behavior due to an incentive incompatible mechanism. Further research is needed to explore strategic behavior induced by incentive incompatible elicitation formats using alternative approaches that are not compromised by a confounded baseline, that facilitate the differentiation between value learning and strategic behavior, and that allow the use of less restrictive model specifications. Such research should also investigate the effects of varying incentives induced by the order in which choice questions are presented to respondents.
    Keywords: discrete choice experiments, split sample approach, elicitation format, incentive compatibility, strategic behavior, learning effects, panel mixed logit models
    Date: 2010–03
  3. By: Kasia Mazur (Crawford School of Economics and Government, the Australian National University); Jeff Bennett (Crawford School of Economics and Government, the Australian National University)
    Abstract: This research report presents results of a study designed to investigate the effects of including a provision rule in choice modelling non-market valuation studies. Split samples with and without a provision rule were used to test for differences in household willingness to pay (WTP) for improvements in environmental quality in the Hawkesbury-Nepean catchment. Local/rural and distant/urban sub-samples of residents were selected. The results of the study show that the inclusion of a provision rule had an effect on preferences in the distant/urban communities. However, the impact of a provision rule in the local/rural community sub-samples was negligible.
    Keywords: Choice modelling, Incentive comparability, Provision rule, Non-market valuation, Environment
    Date: 2010–02
  4. By: John Rolfe (Faculty of Business and Informatics at Central Queensland University); Jill Windle (Faculty of Business and Informatics at Central Queensland University)
    Abstract: evaluate appropriate management responses. While some deliberately introduced species contribute significantly to agricultural production and other purposes, many invasive weed and animal pests have the potential to generate substantial costs through impacts on agricultural production, biodiversity, ecosystem services, infrastructure and communities. Red imported fire ants, an aggressive ant species, were introduced by accident to Australia, with infestations found in Brisbane in February 2001. Modelling suggested that the pest could invade half of Australia within 35 years if it was not controlled (Kompas and Che 2001; Scanlon and Vanderwoude 2006). While control efforts are reducing the rate of new discoveries, the pest had still not been eradicated by 2009. The benefits of controlling red imported fire ants are largely non-use benefits in terms of avoiding health impacts, maintaining lifestyle and amenity values, and avoiding environmental impacts. Accordingly, these benefits are assessed with an application of choice modelling, a non-market valuation technique.
    Keywords: Invasive species, red imported fire ants, choice modelling experiments, non-market valuation.
    Date: 2009–12
  5. By: Andersson, Jonas (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Ubøe, Jan (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: In this paper we give a survey on some basic ideas related to random utility, extreme value theory and multinomial logit models. These ideas are well known within the field of spatial economics, but do not appear to be common knowledge to researchers in probability theory. The purpose of the paper is to try to bridge this gap.
    Keywords: Random utility theory; extreme value theory; multinomial logit models; entropy.
    JEL: C50
    Date: 2010–01–15
  6. By: Brännlund, Runar (Department of Economics, Umeå University); Persson, Lars (Department of Economics, Umeå University)
    Abstract: Today, many countries around the world respond to the global warming and its consequences with various policy instruments such as e.g. taxes, subsidies, emission permit trading, regulations and information campaigns. In the economic literature, policy instruments have typically been analyzed with respect to efficiency, while little effort has been put on public preferences for these instruments. In this paper, an Internet-based choice experiment is conducted where respondents are asked to choose between two alternative policy instruments that both reduce the emissions of CO2 by the same amount. The policy instruments are characterized by a number of attributes; a technology-effect, an awareness-effect, cost distribution, geographic distribution and private cost (presented in more detail in the paper). By varying the levels of each of the attributes, respondents indirectly reveal their preferences for these attributes. Half of the respondents are faced with instruments labeled by ‘tax’ and ‘other’, whereas the other half are faced with unlabeled instruments. As for the label, the results show that people dislike the ‘tax’. The results also show that people prefer instruments with a positive effect on environmentally-friendly technology and climate awareness. A progressive-like cost distribution is preferred to a regressive cost distribution, and the private cost is negatively related to the choice. Finally, the results indicate that Swedes want the reduction to take place in Europe but not necessarily in Sweden.
    Keywords: preferences; climate policy measures; choice experiment; web-survey
    JEL: H20 H31 Q48 Q50
    Date: 2010–04–06
  7. By: Stefan Hoderlein (Institute for Fiscal Studies and Brown)
    Abstract: <p><p><p><p><p>In this paper we consider endogenous regressors in the binary choice model under a weak median exclusion restriction, but without further specification of the distribution of the unobserved random components. Our reduced form specification with heteroscedastic residuals covers various heterogeneous structural binary choice models. As a particularly relevant example of a structural model where no semiparametric estimator has of yet been analyzed, we consider the binary random utility model with endogenous regressors and heterogeneous parameters. We employ a control function IV assumption to establish identification of a slope parameter 'â' by the mean ratio of derivatives of two functions of the instruments. We propose an estimator based on direct sample counterparts, and discuss the large sample behavior of this estimator. In particular, we show '√'n consistency and derive the asymptotic distribution. In the same framework, we propose tests for heteroscedasticity, overidentification and endogeneity. We analyze the small sample performance through a simulation study. An application of the model to discrete choice demand data concludes this paper.</p></p></p></p></p>
    Date: 2009–12
  8. By: Andrew Chesher (Institute for Fiscal Studies and University College London); Konrad Smolinski (Institute for Fiscal Studies)
    Abstract: <p>This paper studies single equation instrumental variable models of ordered choice in which explanatory variables may be endogenous. The models are weakly restrictive, leaving unspecified the mechanism that generates endogenous variables. These incomplete models are set, not point, identifying for parametrically (e.g. ordered probit) or nonparametrically specified structural functions. The paper gives results on the properties of the identified set for the case in which potentially endogenous explanatory variables are discrete. The results are used as the basis for calculations showing the rate of shrinkage of identified sets as the number of classes in which the outcome is categorised increases.</p>
    Date: 2009–12
  9. By: David Hoyos Ramos (Unidad de Economía Ambiental, Instituto de Economía Pública, UPV/EHU)
    Abstract: This paper provides with a review of the state of the art of environmental valuation with discrete choice experiments (DCE). The growing body of literature on this field serves to emphasise the increasing role that DCE are playing in environmental decision making in the last decade. The paper attempts to cover the full process of undertaking a choice experiment, including survey and experimental design, econometric analysis of choice data and welfare analysis. The research on this field is found to be intense, although many challenges are put forward (e.g. choice task complexity and cognitive effort, experimental design, endogeneity or model uncertainty). Reviewing the state of the art of DCE serves to draw attention to the main challenges that this methodological approach will need to overcome in the coming years and to identify the frontiers in discrete choice analysis.
    Keywords: discrete choice experiments, choice modelling; survey; environmental valuation
    JEL: Q51
    Date: 2010–03–12
  10. By: Michael H. Birnbaum; Ulrich Schmidt; Miriam D. Schneider
    Abstract: This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in most previous studies) but also in split form. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. Splitting effects have a substantial influence on the tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the independence conditions we tested become either reversed, insignificant or unsystematic
    Keywords: Independence axiom, splitting effects, coalescing, errors, experiment
    JEL: C91 D81
    Date: 2010–03
  11. By: Ulrich Schmidt; Stefan T. Trautmann
    Abstract: This paper presents an experimental study analyzing common consequence effects with binary choice, willingness-to-pay (WTP), and willingness-to-accept (WTA). Consistent with previous research we do not find clearcut evidence of fanning out in the absence of certainty effects. Violation rates of EU are more pronounced for WTP and WTA than for choice data. Moreover, there is a strong tendency for violations in the direction of fanning out. Our results reinforce the significance of common consequence effects and provide support for the operation of cancellation in prospect theory
    Keywords: Common consequence effects, fanning out, WTP, WTA, cancellation
    JEL: C91 D81
    Date: 2010–03

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