nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2013‒04‒06
nine papers chosen by
Edoardo Marcucci
Universita' di Roma Tre

  1. Valuation of Health Inputs and Convenience in New Products By Nordström, Jonas
  2. Steady-State Labor Supply Elasticities: An International Comparison By Olivier Bargain; Andreas Peichl
  3. What do instrumental variable models deliver with discrete dependent variables? By Andrew Chesher; Adam Rosen
  4. A discrete-choice econometrician's tale of monetary policy identification and predictability. By SIRCHENKO, Andrei
  5. Random coefficients in static games of complete information By Fabian Dunker; Stefan Hoderlein; Hiroaki Kaido
  6. Investigating fishers’ preferences for the design of marine Payments for Environmental Services schemes By Rhona Barr; Susana Mourato
  7. Can Marginal Rates of Substitution Be Inferred from Happiness Data? Evidence from Residency Choices By Daniel J. Benjamin; Ori Heffetz; Miles S. Kimball; Alex Rees-Jones
  8. A model for ordinal responses with an application to policy interest rate By Andrei Sirchenko
  9. Strategic or Non-Strategic: The Role of Financial Benefit in Bankruptcy By Li Gan; Tarun Sabarwal; Shuoxun Zhang

  1. By: Nordström, Jonas (Department of Economics, Lund University)
    Abstract: The prevalence of illnesses related to the modern diet and a more sedentary lifestyle has increased markedly over the last few decades. There is therefore a need for effective strategies to promote health and to reduce the prevalence of diet-related diseases. In this paper, we study the willingness to pay for a new concept, healthy canteen takeaways. In the analysis, we depart from a household production model. To control for the endogeneity of the health state, we use a control function approach. The result suggests that health inputs, such as low-fat meat and a larger amount of vegetables, increase respondents’ utility. Respondents’ valuations of the convenience attribute are very heterogenous, with both positive and negative values. From a policy perspective, the IV estimation turns out to be of importance, with a sign change in the valuation of low-fat meals for individuals with a poor health state (high MBI).
    Keywords: endogen; discrete choice; health; household production; instrumental variable
    JEL: C25 D12 D13 I10
    Date: 2013–03–26
  2. By: Olivier Bargain (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IZA - Institute for the Study of Labor); Andreas Peichl (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne, CESifo - CESifo, ISER - University of Essex)
    Abstract: This note provides an extensive survey of studies estimating steady-state labor supply elasticities for Western Europe and the US. Differences are driven by the heterogeneity in work preferences across countries and by methodological difference across studies (data, selection or model estimation and specification). While the former exists but is shown to be relatively small (Bargain et al., 2013), we focus here on modeling choices: Large elasticities are mainly found in studies estimated in the 1980s and relying on the Hausman approach. More recent estimates based on discrete-choice models with tax-benefit simulations show smaller and more similar estimates across countries. While we confirm that elasticities decline over time in the US, there is some evidence that both time effect and modeling choices affect estimates for Europe.
    Keywords: household labor supply; elasticity; taxation; Europe; US
    Date: 2013–03
  3. By: Andrew Chesher (Institute for Fiscal Studies and University College London); Adam Rosen (Institute for Fiscal Studies and University College London)
    Abstract: We study models with discrete endogenous variables and compare the use of two stage least squares (2SLS) in a linear probability model with bounds analysis using a nonparametric instrumental variable model. 2SLS has the advantage of providing an easy to compute point estimator of a slope coefficient which can be interpreted as a local average treatment effect (LATE). However, the 2SLS estimator does not measure the value of other useful treatment effect parameters without invoking untenable restrictions. The nonparametric instrumental variable (IV) model has the advantage of being weakly restrictive, so more generally applicable, but it usually delivers set identification. Nonetheless it can be used to consistently estimate bounds on many parameters of interest including, for example, average treatment effects. We illustrate using data from Angrist & Evans (1998) and study the effect of family size on female employment.
    Keywords: discrete endogenous variables; endogeneity; incomplete models; instrumental variables; set identification, structual econometrics
    JEL: C10 C14 C50 C51
    Date: 2013–03
  4. By: SIRCHENKO, Andrei
    Abstract: This thesis studies the econometric identification and predictability of monetary policy. It addresses the discrete and collective nature of policy decisions, and the use of the real-time versus currently available revised data. The first chapter combines the ordered probit model, novel real-time data set and policy-making meetings as a unit of observation to estimate highly systematic reaction patterns between policy rate decisions and incoming economic data. The paper measures the empirical significance of the rate discreteness and demonstrates that both the discrete-choice approach and real-time "policy-meeting" data do matter in the econometric identification of monetary policy. The estimated rules surpass the market anticipation made one day prior to a policy meeting, both in and out of sample. The second chapter provides empirical evidence that a prompter release of policy- makers’ votes could improve the predictability of policy decisions. The voting patterns reveal strong and robust predictive content even after controlling for policy bias and responses to inflation, real activity, exchange rates and financial market indicators. They contain information not embedded in the spreads and moves in the market interest rates, nor in the explicit forecasts of the next policy decision made by market analysts. Moreover, the direction of policymakers’ dissent explains the direction of analysts’ forecast bias. The third chapter develops a two-stage model for ordinal outcomes (such as discrete changes to the policy interest rates) that are characterized by abundant observations, potentially generated by different processes, in the middle neutral category (no change to the rate). In the context of policy rate setting, the first stage, a policy inclination decision, determines policy stance (loose, neutral or tight) as a reaction to economic conditions, whereas two amount decisions at the second stage are driven mostly by the institutional features. There are three types of zeros: "neutral" zeros, generated directly by the neutral policy stance, and two kinds of "offset" zeros, "loose" and "tight" zeros, generated by the loose or tight stance, offset at the second stage. The model is applied to the individual policymakers’ votes for the interest rate. Both the empirical applications and simulations demonstrate superiority with respect to the conventional models.
    Date: 2012
  5. By: Fabian Dunker; Stefan Hoderlein (Institute for Fiscal Studies and Boston College); Hiroaki Kaido (Institute for Fiscal Studies and Boston University)
    Abstract: Individual players in a simultaneous equation binary choice model act differently in different environments in ways that are frequently not captured by observables and a simple additive random error. This paper proposes a random coefficient specification to capture this type of heterogeneity in behaviour, and discusses nonparametric identification and estimation of the distribution of random coefficients. We establish nonparametric point identification of the joint distribution of all random coefficients, except those on the interaction effects, provided the players behave competitively in all markets. Moreover, we establish set identification of the density of the coefficients on the interaction effects, and provide additional conditions that allow to point identify this density. Since our identification strategy is constructive throughout, it allows us to construct sample counterpart estimators. We analyse their asymptotic behaviour, and illustrate their finite sample behaviour in a numerical study. Finally, we discuss several extensions, like the semiparametric case, or correlated random coefficients.
    Keywords: Games, heterogeneity, nonparametric identification, random coefficients, inverse problems
    Date: 2013–03
  6. By: Rhona Barr; Susana Mourato
    Abstract: We determine the effects of various management restrictions on adoption rates of marine PES schemes. Choice experiments are used in order to determine how fisher participation rates differ under different marine PES programme designs. Various designs, with differing restriction rates, show different rates of adoption. However, fishers’ express a high utility loss associated with any move away from the current management situation, irrespective of restriction levels. This indicates that PES scheme costs may be high and creating an enabling environment could be important to reducing these perceived losses, as could investment into conditional in-kind compensation mechanisms. The paper also shows choice experiments to be a useful tool in marine PES design.
    Date: 2012–11
  7. By: Daniel J. Benjamin; Ori Heffetz; Miles S. Kimball; Alex Rees-Jones
    Abstract: To what extent do marginal rates of substitution estimated from subjective well-being (SWB) data reflect the tradeoffs that individuals would deliberately choose to make? Surveying 561 students from U.S. medical schools shortly after they submit their choice rankings over residencies to the National Resident Matching Program, we elicit both choice rankings and anticipated-SWB rankings over residencies (using three common SWB measures). We find substantial differences between the two rankings in the implied tradeoffs between different features of the residencies. For example, while residency prestige-and-status weighs more in choice, expecting life to seem worthwhile during the residency weighs more in all SWB measures. At the same time, tradeoffs estimated from anticipated SWB are relatively highly correlated with those estimated from choice, and we find no sign reversals between a feature’s relationship with anticipated SWB and its relationship with choice. We also find that evaluative measures (life satisfaction and Cantril’s ladder) imply tradeoffs closer to choice than does affective happiness. We further investigate a multi-period happiness index and a multi-measure SWB index and do not find that they generate tradeoff estimates closer to those generated by choice. Finally, despite the differences in implied tradeoffs, we find that SWB questions predict pairwise choice reasonably well in our data, and often substantially better than alternative questions. We discuss implications of our findings for the use of SWB data in applied work.
    JEL: C81 D03 D69
    Date: 2013–03
  8. By: Andrei Sirchenko (European University Institute, Florence, Italy)
    Abstract: The decisions to reduce, leave unchanged, or increase (the price, rating, policy interest rate, etc.) are often characterized by abundant no-change outcomes that are generated by di¤erent processes. Moreover, the positive and negative responses can also be driven by distinct forces. To capture the unobserved heterogeneity this paper develops a two- stage cross-nested model, combining three ordered probit equations. In the policy rate setting context, the …rst stage, a policy inclination decision, determines a latent policy stance (loose, neutral or tight), whereas the two latent amount decisions, conditional on a loose or tight stance, …ne-tune the rate at the second stage. The model allows for the possible correlation among the three latent decisions. This approach identi…es the driving factors and probabilities of three types of zeros: the ”neutral” zeros, generated directly by the neutral policy stance, and two kinds of ”o¤set” zeros, the ”loose” and ”tight” zeros, generated by the loose or tight stance, o¤set at the second stage. Monte Carlo experiments show good performance in small samples. Both the simulations and empirical applications to the panel data on individual policymakers’ votes for the interest rate demonstrate the superiority with respect to the conventional and two-part models. Only a quarter of observed zeros appears to be generated by the neutral policy stance, suggesting a high degree of deliberate interest-rate smoothing by the central bank.
    Keywords: ordinal responses; zero-in‡ated outcomes; three-part model; cross- nested model; policy interest rate; MPC votes; real-time data; panel data.
    JEL: C33 C35 E52
    Date: 2013
  9. By: Li Gan (Department of Economics, Texas A&M University); Tarun Sabarwal (Department of Economics, University of Kansas); Shuoxun Zhang (Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China)
    Abstract: A partial test for strategic behavior in bankruptcy filing may be formulated by testing whether consumers manipulate their debt and filing decision jointly, or not: that is, testing for endogeneity of financial benefit and the bankruptcy filing decision. Using joint maximum likelihood estimation of an extended discrete choice model, test results are consistent with non-strategic filing: financial benefit is exogenous to the filing decision. This result is confirmed in two different datasets (PSID and SCF). This result is consistent with an ex ante low net gain from a bankruptcy filing; a type of “rational inattention” to rare events such as bankruptcy.
    Keywords: Consumer bankruptcy, personal bankruptcy, adverse events, strategic filing
    JEL: D12 D14
    Date: 2013–03

This nep-dcm issue is ©2013 by Edoardo Marcucci. 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.