nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2010‒11‒20
five papers chosen by
Philip Yu
Hong Kong University

  1. Empirical Welfare Analysis in Random Utility Models of Labour Supply By André Decoster; Peter Haan
  2. Consumer Preferences for Water Supply? An Application of Choice Models to Urban India By P.B. Anand
  3. Revealed Preferences for Risk and Ambiguity By Donald J. Brown; Chandra Erdman; Kirsten Ling; Laurie Santos
  4. Unobserved Heterogeneity in Multi-Spell Discrete Time Duration Models By Raquel Carrasco; José Ignacio García Pérez
  5. Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption By Berg, Nathan; Kim, Jeong-Yoo

  1. By: André Decoster; Peter Haan
    Abstract: The aim of this paper is to apply recently proposed individual welfare measures in the context of random utility models of labour supply. Contrary to the standard practice of using reference preferences and wages, these measures preserve preference heterogeneity in the normative step of the analysis. They also make the ethical priors, implicit in any interpersonal comparison, more explicit. On the basis of microdata from the Socio Economic Panel (SOEP) for married couples in Germany, we provide empirical evidence about the sensitivity of the welfare orderings to different normative principles embodied in these measures. We retrieve individual and household specific preference heterogeneity, by estimating a structural discrete choice labor supply model. We use this preference information to construct welfare orderings of households according to the different metrics, each embodying different ethical choices concerning the preference heterogeneity in the consumption-leisure space. We then discuss how sensitive the assessment of a hypothetical tax reform is to the choice of metric. The chose tax reform is similar to a subsidy of social security contributions.
    Keywords: Welfare measures, labour supply, random utility, preference heterogeneity
    JEL: C35 D63 D78 H24 H31 J22
    Date: 2010
  2. By: P.B. Anand
    Abstract: This paper examines consumer preferences for the attributes of alternative sources of water supply in Chennai, based on a household survey where respondents were given the description of a set of options. Their decision to choose one of the options is examined using discrete choice models. Whether consumer preferences are hierarchical or lexicographic is also briefly examined. Access to a yard tap is considered to be a more important attribute than water quantity, quality and the provider (the private sector or public sector). In general, the estimated willingness to pay is substantially higher than the present monthly water expenditures. However, some consumers, specially those living in the peri-urban areas, do not seem to be willing to pay for water supply improvements. Among the plausible reasons are a lack of trust in the public utility or a manifestation of the equity politics in India (the peri-urban households claiming their entitlement to subsidized water), or the presence of preference reversal. [Discussion Paper No.2001/145]
    Keywords: watersupply,consumerpreferences,discretechoice,lexicographic preferences
    Date: 2010
  3. By: Donald J. Brown (Department of Economics, Yale University); Chandra Erdman (U.S. Bureau of the Census); Kirsten Ling (Office of the Controller of the Currency); Laurie Santos (Department of Psychology, Yale University)
    Abstract: We replicate the essentials of the Huettel et al. (2006) experiment on choice under uncertainty with 30 Yale undergraduates, where subjects make 200 pair-wise choices between risky and ambiguous lotteries. Inferences about the independence of economic preferences for risk and ambiguity are derived from estimation of a mixed logit model, where the choice probabilities are functions of two random effects: the proxies for risk-aversion and ambiguity-aversion. Our principal empirical finding is that we cannot reject the null hypothesis that risk and ambiguity are independent in economic choice under uncertainty. This finding is consistent with the hypothesized independence of the neural mechanisms governing economic choices under risk and ambiguity, suggested by the double dissociation-fMRI study reported in Huettel et al.
    Keywords: Mixed logit, Risk-aversion, Ambiguity-aversion
    JEL: C14 C25 C91 D81
    Date: 2010–11
  4. By: Raquel Carrasco (Department of Economics, Universidad Carlos III de Madrid); José Ignacio García Pérez (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper considers the estimation of discrete time duration models. We highlight the enhance identification opportunities embedded in multiple spell data to separately identify the effect of duration dependence and individual time invariant unobserved heterogeneity. We consider two types of models: (i) random effects models specifying a mass point distribution for the unobserved heterogeneity; and (ii) fixed effects models in which the distribution of the effects is left unrestricted. The availability of multiple spell data allows us to consider this type of models, in the spirit of fixed effects discrete choice panel data models. We study the finite sample properties of different estimators for previous models by means of Monte Carlo simulations. Finally, as an empirical illustration, we estimate unemployment duration models using Spanish administrative data with information on the entire labor history of the individuals.
    Keywords: Duration models; Discrete choice; Multiple spells; Unobserved heterogeneity; Unemployment.
    JEL: J64 J61 C23 C41 J65
    Date: 2010–11
  5. By: Berg, Nathan; Kim, Jeong-Yoo
    Abstract: Is it better to apply effort to increase personal consumption, or control what one wants? The model presented here provides a characterization of demand for self control, namely, its responsiveness to price and risk. Unlike most other models of self control, the model does not identify self control with time inconsistency or rely on the multiple-selves framework. Self control refers to resources allocated to preference transformation technology enabling consumers to moderate desire for ordinary consumption by reducing threshold levels required to achieve goals or target-levels of consumption. Consumers face a choice between allocating resources toward increasing expected levels of consumption or increasing chances of contentment through self control. Because of strong income effects, demand for self control turns out to be non-monotonic in price and sometimes discontinuous, revealing potential for unanticipated and sometimes surprisingly large responses to small changes in price. The model is used to analyze consumers’ willingness to follow new regulations, take up credit counseling, enroll in financial literacy programs, and purchase products aimed at improving financial decision making through cultivation of self control.
    Keywords: Preference Choice; Preference Change; Moderation; Restraint; Desire; Financial; Decision Making; Consumer Credit; Consumer Finance; Institutional Design; Ecological Rationality; Bounded Rationality; Behavioral Economics
    JEL: D18 D11 B30 D13 C65 B52 G28 C21 D60 G21
    Date: 2010

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