nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2013‒11‒29
eight papers chosen by
Edoardo Marcucci
Universita' di Roma Tre

  1. A Generalized Random Regret Minimization Model By Chorus, Caspar
  2. Switching Costs and Network Effects – How Much Do they Really Matter in Mobile Telecommunications? By Mikołaj Czajkowski; Maciej Sobolewski
  3. The Influence of Psychological Well-being, Ill Health and Health Shocks on Single Parents' Labour Supply By Alan Duncan; Mark Harris; Anthony Harris; Eugenio Zucchelli
  4. Hedonic model with discrete consumer heterogeneity and horizontal differentiated housing By Masha Maslianskaia-Pautrel
  5. Ethnic segregation and heterogeneous preferences of homeowners for housing and neighbourhood characteristics. Evidence from the Netherlands By Ong, Cheng Boon; De Witte, Kristof
  6. The Value of Familiarity: Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good By Jacob Lariviere; Mikołaj Czajkowski; Nick Hanley; Margrethe Aanesen; Jannike Falk-Petersen; Dugald Tinch
  7. Consistent Model Specification Testing By James Davidson; Andreea G. Halunga
  8. Within and Between-Country Value Diversity in Europe: Latent Class Analysis By Vladimir Magun; Maksim Rudnev; Peter Schmidt

  1. By: Chorus, Caspar
    Abstract: This paper presents, discusses and tests a generalized Random Regret Minimization (G-RRM) model. The G-RRM model is created by replacing a fixed constant in the attribute-specific regret functions of the RRM model, by a regret-weight variable. Depending on the value of the regret-weights, the G-RRM model generates predictions that equal those of, respectively, the canonical linear-in-parameters Random Utility Maximization (RUM) model, the conventional Random Regret Minimization (RRM) model, and hybrid RUM-RRM specifications. When the regret-weight variable is written as a binary logit function, the G-RRM model can be estimated on choice data using conventional software packages. As an empirical proof of concept, the G-RRM model is estimated on a stated route choice dataset, and its outcomes are compared with RUM and RRM counterparts.
    Keywords: Random Utility Maximization; Random Regret Minimization; Choice model; Unified approach; Generalized Random Regret Minimization
    JEL: C5 M30 R41
    Date: 2013–11–21
  2. By: Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Maciej Sobolewski (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Our study focuses on the identification and the measurement of switching costs and network effects in mobile telecommunications. Although these two phenomena create similar consumer lock-in mechanisms, there are no empirical studies that integrate them into one model of subscriber’s behavior. Our study fills this gap by applying stated preference valuation methods to a representative sample of individual mobile phone users in Poland. We find that number portability can be attributed to only approximately 50% of the total switching costs associated with changing either the provider or the service and the remaining part is associated with status quo inertia. Additionally, we show that because network effects play an important role in service valuation, they lead to strengthening the lock-in mechanisms even further. Our study provides the first empirical measurements of the relative importance of these simultaneous effects and provides the estimates of their monetary value.
    Keywords: Switching costs, network effects, mobile telecommunications, mobile number portability, brand valuation, stated preference, non-market valuation, discrete choice experiment, random parameters multinomial logit model
    JEL: L1 L86 O3
    Date: 2013
  3. By: Alan Duncan (Bankwest Curtin Economics Centre (BCEC), Curtin University); Mark Harris (School of Economics and Finance, Curtin University); Anthony Harris (Centre for Health Economics (CHE), Monash University); Eugenio Zucchelli (University of Lancaster, UK)
    Abstract: This paper proposes a discrete-choice behavioural model of labour supply to examine the role of ill-health on single parents’ employment. The model provides estimates of individual preferences over a given set of labour market states and allows these preferences to be influenced by a measure of mental health, a latent health index purged of reporting bias and various measures of health shocks. Exploiting longitudinal data from the HILDA Survey, we find that psychological well-being, ill-health and health shocks significantly influence single parents’ marginal disutility of work and marginal utility of income. Further, we apply behavioural microsimulation methods to estimate the likely labour supply responses among single parents in Australia from restricting eligibility to access disability support via the Australian Disability Support Pension (DSP) scheme. Our simulation exercise reveals that imposing tighter DSP eligibility rules has a moderate but positive effect on single mothers’ employment.
    Keywords: health, disability, wellbeing, health shocks, discrete choice, behavioural microsimulation, labour supply
    JEL: C10 C25 C51 I10 I19 J01
    Date: 2013–07
  4. By: Masha Maslianskaia-Pautrel
    Abstract: This paper investigates how the hedonic equilibrium is modified when discrete consumer heterogeneity with horizontal differentiated housing supply is assumed. Our results are threefold. First, discrete consumer heterogeneity leads to a segmentation of the hedonic price function at equilibrium and the discontinuity of the implicit price of environmental quality on the borders of the segments. Second, we demonstrate that horizontal differentiation can lead to a partial sorting of consumer demand for housing attributes at hedonic equilibrium. Finally, we show that according to model specification, the groupwise heterogeneity with horizontal differentiation can lead to modification of welfare assessment related to changes in environmental quality.
    Keywords: Hedonic model, Discrete consumer heterogeneity, Horizontal differentiation, Locational choice
    JEL: R21 R31 Q51
    Date: 2013–10–09
  5. By: Ong, Cheng Boon (UNU-MERIT / MGSoG); De Witte, Kristof (Top Institute for Evidence Based Education Research, Maastricht University, and Faculty of Economics and Business, KU Leuven)
    Abstract: This paper examines ethnically differentiated preferences for neighbourhood ethnic composition among homeowners in the Netherlands. Borrowing from price hedonic theory, it tests a fully nonparametric empirical model of housing choice. We exploit rich neighbourhood-level administrative data linked to the 2009 'Dutch Housing and Living Survey'. The nonparametric analysis proceeds in two steps. First, housing prices are decomposed into attribute-specific 'implicit prices'. These price hedonic estimates indicate a significant negative effect of the percentage of non-western minority residents in a neighbourhood on housing prices. For the second step and using the recovered household preference parameters, the marginal willingness to pay for an increase in non-western minority neighbours is estimated. Our model predicts an average decrease in dwelling price of €697 for every 10 per cent increase in non-western neighbours. The paper finds evidence of assimilation with some homeowners of non-western migrant background having a negative willingness to pay for living next to more co-ethnic neighbours.
    Keywords: demand estimation, hedonic price, heterogeneous preference, nonparametric, generalized kernel function, ethnic segregation
    JEL: R20 R21 R23 R31 R32
    Date: 2013
  6. By: Jacob Lariviere (Department of Economics and Baker Center for Public Policy, University of Tennessee); Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Nick Hanley (Division of Economics, University of Stirling); Margrethe Aanesen (Faculty of Biosciences, Fisheries and Economics, University of Tromso); Jannike Falk-Petersen (Faculty of Biosciences, Fisheries and Economics, University of Tromso); Dugald Tinch (Division of Economics, University of Stirling)
    Abstract: This paper compares how increases in experience versus increases in knowledge about a public good affect willingness to pay (WTP) for its provision. This is challenging because while consumers are often certain about their previous experiences with a good, they may be uncertain about the accuracy of their knowledge. We therefore design and conduct a field experiment in which treated subjects receive a precise and objective signal regarding their knowledge about a public good before estimating their WTP for it. Using data for two different public goods, we show qualitative equivalence of the effect of knowledge and experience on valuation for a public good. Surprisingly, though, we find that the causal effect of objective signals about the accuracy of a subject’s knowledge for a public good can dramatically affect their valuation for it: treatment causes an increase of $150-$200 in WTP for well-informed individuals. We find no such effect for less informed subjects. Our results imply that WTP estimates for public goods are not only a function of true information states of the respondents but beliefs about those information states.
    Keywords: Information, Beliefs, Field Experiment, Valuation, Uncertainty, Choice Experiment
    JEL: C93 Q51 D83
    Date: 2013
  7. By: James Davidson (Department of Economics, University of Exeter); Andreea G. Halunga (Department of Economics, University of Exeter)
    Abstract: This paper proposes a consistent model speci?cation test that can be applied to a wide class of models and estimators, including all variants of quasi-maximum likelihood and generalized method of moments. Our framework is independent of the form of the model and generalizes Bierens?(1982, 1990) approach. It has particular applications in new cases such as heteroskedastic errors, discrete data models, but the chief appeal of our approach is that it provides a "one size ?ts all" test. We specify a test based on a linear combination of individual components of the indicator vector that can be computed routinely, does not need to be tailored to the particular model, and is expected to have power against a wide class of alternatives. Although primarily envisaged as a test of functional form, this type of moment test can also be extended to testing for omitted variables.
    Keywords: speci?cation testing; quasi-maximum likelihood estimators; generalized method of moments estimators.
    JEL: C12
    Date: 2013
  8. By: Vladimir Magun (Head of the Unit for Personality Studies at the Institute of Sociology of the Russian Academy of Sciences, Head of the Laboratory for Comparative Studies of Mass Consciousness at the National Research University Higher School of Economics); Maksim Rudnev (Research fellow at the National Research University Higher School of Economics and at the Institute of Sociology of the Russian Academy of Sciences;); Peter Schmidt (National Research University Higher School of Economics (Moscow, Russia). International Laboratory of Socio-Cultural research, The Co-Head; Giessen University, Germany)
    Abstract: In order to combine a study of within-country value diversity and cross-country differences, we applied a person-centered approach. Instead of focusing on the distinct value items, respondents from the 33 European countries were classified on the basis of the whole set of Schwartz value items (Portrait Values Questionnaire) by means of Latent Class Analysis. Six Pan-European value classes were found; they differ both by rank of values and degree of value preferences. Surprisingly, a class with the least pronounced value preferences appeared to be the largest one (38%). In each country all six value classes are represented. Nordic and Western European countries have more uniform distributions of value class shares than Post-Communist and Mediterranean countries; this is suggested to be an implication of societal developmental processes which start from the few people who commit themselves to the values of more advanced countries.
    Keywords: value, preference, heterogeneity, fractionalization, latent class analysis, European Social Survey (ESS), Portrait Values Questionnaire, cross-national comparison
    JEL: Z10
    Date: 2013

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.