nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2013‒10‒18
eight papers chosen by
Edoardo Marcucci
Universita' di Roma Tre

  1. Recursive Stochastic Choice By Drew Fudenberg; Tomasz Strzalecki
  2. Individual Decisions And System Development - Integration Modelling Approaches For The Heating Market By Klaas Bauermann; Stephan Spiecker
  3. Revealed Preference Foundations of Expectations-Based Reference-Dependence By David Freeman
  4. Health Care Facility Choice and User Fee Abolition: Regression Discontinuity in a Multinomial Choice Setting By Steven F. Koch and Jeffrey S. Racine
  5. How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange By Keith M Marzilli Ericson; Amanda Starc
  6. Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play By Joao Macieira; Pedro Pereira; Joao Vareda
  7. Inferring Rationales from Choice : Identification for Rational Shortlist Methods By Rohan Dutta; Sean Horan
  8. School segregation, school choice and educational policies in 100 Hungarian towns By Gabor Kertesi; Gabor Kezdi

  1. By: Drew Fudenberg; Tomasz Strzalecki
    Abstract: We characterize two sorts of stochastic choice rules in which the agent makes current decisions using a forward-looking value function that takes future randomizations into account. Both sorts of rules generalize logistic choice, and are equivalent to it in static problems. The rules differ in how the agent views future choice sets and how he views his future randomizations. One rule is equivalent to the discounted logit used in applied work, and exhibits a “preference for flexibility;†the other is “error-averse†and penalizes the addition of undesirable choices to a menu.
    Date: 2013–08
  2. By: Klaas Bauermann; Stephan Spiecker (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)
    Abstract: Improvements in the building stock insulation and the replacement of heating systems will have to take place within the next decades in order to lower heat demand and the associated carbon emissions of the building sector. The current study presents an integrated, iterative modelling approach to determine the development of the heating market. A system model captures the fundamental influencing factors on the investment decision while a logistic decision model describes in detail the building owners’ behaviour, taking into account the heterogeneous building stock and possible non-economic factors influencing heating system choice. In the application case, the potentials for different heating technologies are investigated under three different economic scenarios for the German heating market until 2050. The heating market with house owners as the main actors is relatively sluggish, thus political targets are likely to fail. The impact of the heat pump induced electricity demand on the power market remains low. In order to achieve the ambitious heating market targets in Germany further efforts are necessary. In particular the potentials of the existing building stock need to be taped more efficiently.
    Keywords: Heating, Residential Energy Demand, Discrete Choice, Peak Load Pricing
    JEL: Q47 Q48 E61 C53 C35
    Date: 2013–10
  3. By: David Freeman (Simon Fraser University)
    Abstract: This paper provides revealed preference foundations for a model of expectations based reference-dependence a la Koszegi and Rabin (2006). Novel axioms provide distinguishing features of expectations-based reference-dependence under risk. The analysis completely characterizes the model’s testable implications when expectations are unobservable.
    Keywords: Reference-dependent preferences, expectations as the reference point, preferred personal equilibrium, choice under risk
    JEL: D81
    Date: 2013–09
  4. By: Steven F. Koch and Jeffrey S. Racine
    Abstract: We apply parametric and nonparametric regression discontinuity methodology within a multinomial choice setting to examine the impact of public health care user fee abolition on health facility choice using data from South Africa. The nonparametric model is found to outperform the parametric model both in- and out-of-sample, while also delivering more plausible estimates of the impact of user fee abolition (i.e. the `treatment effect'). In the parametric framework, treatment effects were relatively constant { around 7% { and that increase was drawn equally from both home care and private care groups. On the other hand, in the nonpara-metric framework treatment effects were largest for the least well-off (also around 7%) but fell for the most well-off. More plausibly, that increase was drawn primarily from the home care group, suggesting that the policy favoured those least well-off as more of these children received at least some minimum level of professional health care after the policy was implemented. Regarding the most well-off, despite having access to free public health care, children were still far more likely to receive health care at private facilities than at public facilities, which is also more plausible in South Africa's two-tier health sector.
    Keywords: Health care facility, User fee abolition, Regression Discontinuity
    Date: 2013
  5. By: Keith M Marzilli Ericson; Amanda Starc
    Abstract: Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange. Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands' market shares. We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals.
    JEL: D14 D80 H31 I11 L15
    Date: 2013–10
  6. By: Joao Macieira (Department of Economics, Virginia Tech); Pedro Pereira (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora); Joao Vareda (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora)
    Abstract: We analyze firms' incentives to bundle and tie in the telecommunications industry. As a first step, we develop a discrete-choice demand model where firms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a firm may sell. We exploit these properties to examine bundling behavior when firms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify firm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles, Discrete-Choice Model, Equilibrium Simulation, Differentiated Product, Consumer Level Data.
    JEL: D43 K21 L44 L96
    Date: 2013–09
  7. By: Rohan Dutta; Sean Horan
    Abstract: A wide variety of choice behavior inconsistent with preference maximization can be explained by Manzini and Mariotti's Rational Shortlist Methods. Choices are made by sequentially applying a pair of asymmetric binary relations (rationales) to eliminate inferior alternatives. Manzini and Mariotti's axiomatic treatment elegantly describes which behavior can be explained by this model. However, it leaves unanswered what can be inferred, from observed behavior, about the underlying rationales. Establishing this connection is fundamental not only for applied and empirical work but also for meaningful welfare analysis. Our results tightly characterize the surprisingly rich relationship between behavior and the underlying rationales.
    Keywords: Revealed Preference; Identification; Uniqueness; Two-stage Choice Procedures; Behavioral Industrial Organization; Comparative Advertising; Decoy Marketing; Welfare.
    JEL: D01
    Date: 2013
  8. By: Gabor Kertesi (Institute of Economics, Center for Economic and Regional Studies, Hungarian Academy of Sciences); Gabor Kezdi (Central European University and Institute of Economics, Center for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: The distribution of Roma and non-Roma students across schools has become considerably more unequal in Hungary since the 1980's. This paper analyzes the effect of school choice and local educational policies on that inequality, known as school segregation, in 100 Hungarian towns. We combine administrative data with data from a survey that we collected from municipality administrations with respect to local educational policies and the ethnic composition of neighborhoods. Our results indicate that in Hungarian towns, free school choice diminishes the role of residential distribution because many students commute to schools of their choice. Towns where such commuting is more pronounced are characterized by stronger inter-school inequalities. We also find that local educational policies have, on average, somewhat segregationist tendencies, though there is substantial heterogeneity across towns. The more segregationist the local policies are, the higher the segregation in the town, thus suggesting that local policies have room to influence school segregation in this system. However, the impact of local educational policies is weaker than the role of school choice.
    Keywords: School segregation, Roma minority, school choice, local educational policies
    JEL: I24 I28 J15
    Date: 2013–07

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