nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2014‒03‒01
ten papers chosen by
Edoardo Marcucci
Universita' di Roma Tre

  1. Willingness-to-pay for road safety improvement By Mohamed Mouloud Haddak; Nathalie Havet; Marie Lefèvre
  2. Stated and Revealed Heterogeneous Risk Preferences in Educational Choice By Fossen, Frank M.; Glocker, Daniela
  3. What Can I Get For It? The Relationship Between the Choice Equivalent, Willingness to Accept and Willingness to Pay By Lunn,Pete; Lunn, Mary
  5. The Dynamics of Social Assistance Benefit Receipt in Germany: State Dependence before and after the 'Hartz Reforms' By Sebastian Königs
  6. Rationality of Choices in Subsidized Crop Insurance Markets By Xiaodong Du; Hongli Feng; David A. Hennessy
  7. Building reputation on the syndicated lending market: A participant bank perspective By Marie-Hélène Broihanne; Christophe Godlewski
  8. A resource pool for environmental innovation By Rasi Kunapatarawong; Ester Martinez Ros
  9. Gravity and Extended Gravity: Using Moment Inequalities to Estimate a Model of Export Entry By Eduardo Morales; Gloria Sheu; Andrés Zahler
  10. The continuing power of the yield spread in forecasting recessions By Croushore, Dean; Marsten, Katherine

  1. By: Mohamed Mouloud Haddak (IFSTTAR/UMRESTTE - Unité Mixte de Recherche Epidémiologique et de Surveillance Transport Travail Environnement - Université Claude Bernard - Lyon I - IFSTTAR); Nathalie Havet (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I); Marie Lefèvre (IFSTTAR/UMRESTTE - Unité Mixte de Recherche Epidémiologique et de Surveillance Transport Travail Environnement - Université Claude Bernard - Lyon I - IFSTTAR)
    Abstract: Few studies have explored, to date, the issue of the monetary valuation of non-fatal injuries caused by road traffic accidents. The present paper arises interest in this question and aims to estimate, by means of the contingent valuation, the willingness to pay (WTP) of French households to improve their road safety level and reduce their risk of non-fatal injuries following a road accident. More precisely, Logit and Tobit models will be estimated to identify the factors influencing the individual will to pay. The results highlight the significant and positive influence of the injury severity on the WTP of the participants. The direct or indirect experience of road traffic accidents seems to play an important role and positively influences the valuation of the non-fatal injuries.
    Keywords: Road safety; Willingness to pay; Contingent valuation; Value of risk reduction; serious injuries
    Date: 2014–02–20
  2. By: Fossen, Frank M. (Free University of Berlin); Glocker, Daniela (CEP, London School of Economics)
    Abstract: Stated survey measures of risk preferences are increasingly being used in the literature, and they have been compared to revealed risk aversion primarily by means of experiments such as lottery choice tasks. In this paper, we investigate educational choice, which involves the comparison of risky future income paths and therefore depends on risk and time preferences. In contrast to experimental settings, educational choice is one of the most important economic decisions taken by individuals, and we observe actual choices in representative panel data. We estimate a structural microeconometric model to jointly reveal risk and time preferences based on educational choices, allowing for unobserved heterogeneity in the Arrow-Pratt risk aversion parameter. The probabilities of membership in the latent classes of persons with higher or lower risk aversion are modelled as functions of stated risk preferences elicited in the survey using standard questions. Two types are identified: A small group with high risk aversion and a large group with low risk aversion. The results indicate that persons who state that they are generally less willing to take risks in the survey tend to belong to the latent class with higher revealed risk aversion, which indicates consistency of stated and revealed risk preferences. The relevance of the distinction between the two types for educational choice is demonstrated by their distinct reactions to a simulated tax policy scenario.
    Keywords: educational choice, stated preferences, revealed preferences, risk aversion, time preference
    JEL: I20 D81
    Date: 2014–02
  3. By: Lunn,Pete; Lunn, Mary
    Abstract: We hypothesise and confirm a novel empirical result concerning the willingness to accept (WTA)-willingness to pay (WTP) disparity. Employing data from what has become the classic experimental design, we reveal systematic variation in the relative magnitudes of three valuations: WTA, WTP and choice equivalent (CE). Individuals with low CE relative to others set a proportionally higher WTA, while those with high CE set a proportionally lower WTP. The effect size is substantial in relation to the WTA-WTP disparity itself. These results are predicted by a model in which subjects behave as if maximising surplus over a sequence of exchange encounters, as typifies real exchanges outside the laboratory. They are at odds with models based on loss aversion, which either predict constant relativities between the three valuations or the opposite of the pattern observed.
    Keywords: Endowment effect, willingness to pay, willingness to accept, loss aversion
    Date: 2014–02
  4. By: Ryan Monarch
    Abstract: This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters toinvestigate the frictions from changing exporting partners. High costs from switching partners can affect the efficiency of buyer-supplier matches by impeding the movement of importers from high to lower cost exporters. I test the significance of this channel using U.S. import data, which identifies firms on both sides (U.S. and foreign) of an international trade relationship, the location of the foreign supplier, and values and quantities for the universe of U.S. import transactions. Using transactions with China from 2003-2008, I find evidence suggesting that barriers to switching exporters are considerable: 45% of arm’s-length importers maintain their partner from one year to the next, and one-third of all switching importers remain in the same city as their original partner. In addition, importers paying the highest prices are the most likely to change their exporting partner. Guided by these empirical regularities, I propose and structurally estimate a dynamic discrete choice model of exporter choice, embedded in a heterogeneous firm model of international trade. In the model, importing firms choose a future partner using information for each choice, but are subject to partner and location-specific costs if they decide to switch their current partner. Structural estimates of switching costs are large, and heterogeneous across industries. For the random sample of 50 industries I use, halving switching costs shrinks the fraction of importers remaining with their partner from 57% to 18%, and this improvement in match efficiency leads to a 12.5% decrease in the U.S.-China Import Price Index.
    JEL: F23 F14 L14 D21
    Date: 2014–02
  5. By: Sebastian Königs
    Abstract: In this article, we study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel (SOEP) for the years 1995-2011. We show that there is considerable observed state dependence, with an average persistence rate in benefits of 68% compared to an average entry rate of below 4%. To identify a possible structural component in state dependence, we estimate a series of dynamic random-effects probit models that control for unobserved heterogeneity and endogeneity of initial condition. We find evidence of substantial state dependence in benefit receipt. Our estimates suggest that benefit receipt one year ago raises the likelihood of benefit receipt today by a factor of 3.7. This corresponds to an average partial effect of over 14 percentage points. Average predicted entry and persistence rates are much higher in Eastern Germany than in Western Germany, absolute levels of structural state dependence however are comparable. We do not find evidence for much time variation in state dependence. This holds true also for the time around the Hartz reforms.
    Keywords: Social assistance, welfare benefits, state dependence, Hartz reforms
    JEL: I38 J60 J64 C23
    Date: 2014
  6. By: Xiaodong Du; Hongli Feng; David A. Hennessy (Center for Agricultural and Rural Development (CARD))
    Abstract: The U.S. crop insurance market has several features that set it apart from other insurance markets. These include:(a) explicit government subsidies with an average premium subsidy rate of about 60% in recent years; and (b) the legislative requirement that premium rates be set at actuarially fair levels, where the federal government sets rates and pays all costs related to insurance policy sales and services. Bearing these features in mind, we examine to what extent farmers’ crop insurance choices conform to economic theory. A standard expected utility maximization framework is set up to analyze tradeoffs between higher risk protection and larger subsidy payments. Given an actuarially fair premium, a rational farmer should choose either the coverage level with the highest premium subsidy or a higher coverage level. Evidence from a large insurance unit level dataset contradicts this theoretical inference, and so suggests anomalous insurance decisions. Mixed logit estimation reveals that larger out-of-pocket premium reduces the probability that an insurance product is chosen.
    Keywords: actuarial fairness; behavioral anomalies; premium subsidy; under-insurance. JEL Classification: D03, H25, Q18. Highlights: • Under standard economic theory, farmers should choose subsidized crop insurance contracts at high coverage levels. • Scrutiny of contract choice data shows that farmers underinsure their crops. • A mixed logit model suggests that behavior is motivated by aversion to incurring out-of-pocket premiums.
    Date: 2014–02
  7. By: Marie-Hélène Broihanne (LaRGE Research Center, Université de Strasbourg); Christophe Godlewski (LaRGE Research Center, Université de Strasbourg)
    Abstract: Reputation of financial institutions is crucial for their activity and performance. Participant banks often rely on lead bank’s reputation in making future syndicated loan participation and lending decisions. We apply ordered probit regression techniques to a sample of more than 4,600 loans to investigate the determinants of participant banks reputation on the European syndicated lending market between 1999 and 2009. We find that the prestige of the lead bank in the first syndicate joined by a participant is crucial for his reputation. With a top 3 leader, participant reputation may increase by 85% while this effect drops to 30% when syndicating with a top 20 arranger. Establishing participant-lead bank relationships, developing a particular expertise in loan purpose or borrower industry, and funding very large deals also contributes to participant reputation. On the contrary, joining small club deals can be detrimental for reputation building.
    Keywords: bank loans, reputation, syndicated lending, Europe, ordered probit regression.
    JEL: G10 G21 G24 C25
    Date: 2014
  8. By: Rasi Kunapatarawong; Ester Martinez Ros
    Abstract: This paper reports research on the relationship between sourcing strategy of a firm and its environmental innovation propensity. The data is taken from the Spanish TechnologicalInnovation Panel (PITEC) survey during the period of 2007-2011. The uniqueness of the Spanish innovation structure and the increasing relevance of environmental issues for the Spanish economy make it a proper setting to investigate environmental innovation dynamics. The results from 5,352 firms indicate that large firms are more likely to undertake environmental innovation than small- and medium-sized firms (SMEs). These firms rely quite equally on all four sources of knowledge &- internal, market, institutional and freely-available sources &- when deciding to develop environmental innovation. The broad horizons with respect to knowledge sources are likely to increase firms' propensity to introduce environmental innovation. In addition, weprovide the evolutionary nature of firm's innovation search as firms grow in size. Small firmsrely on both internal and freely-available sources rather equally, while internal source is the most relevant for medium firms, and market is the most important source used by large firms indriving environmental innovation. Particularly important is how firms who are already innovators and who receive local funding from the Spanish government are more likely to introduce environmental innovation.
    Keywords: Environmental innovation , Knowledge sourcing , Discrete choice model
    Date: 2014–02
  9. By: Eduardo Morales; Gloria Sheu; Andrés Zahler
    Abstract: Exporting firms continuously change export destinations. We present reduced-form evidence indicating firms are more likely to export to countries that are geographically close to their previous destinations. This evidence for path dependence in exports is robust to controlling for firm-country specific unobservable determinants of export choices that might be correlated over time and space. Accordingly, we develop a model of export dynamics in which firms' exports in each market may depend on: (a) how similar this market is to the firm's home country (gravity), and (b) how similar it is to other countries to which the firm has previously exported (extended gravity). Given the large number of possible export paths from which forward-looking firms may choose, estimation approaches based on discrete choice models are computationally infeasible. Instead, we use a moment inequality approach. We conclude that extended gravity effects may reduce the cost of entering an export market by up to 40%.
    JEL: F14 L65
    Date: 2014–02
  10. By: Croushore, Dean (Federal Reserve Bank of Philadelphia); Marsten, Katherine (University of Richmond)
    Abstract: In this paper, we replicate the main results of Rudebusch and Williams (2009), who show that the use of the yield spread in a probit model can predict recessions better than the Survey of Professional Forecasters. We investigate the robustness of their results in several ways: extending the sample to include the 2007-09 recession, changing the starting date of the sample, changing the ending date of the sample, using rolling windows of data instead of just an expanding sample, and using alternative measures of the \actual" value of real output. Our results show that the Rudebusch-Williams findings are robust in all dimensions.
    Keywords: Real-time data; Recession forecasts; Yield spread;
    Date: 2014–02–13

This nep-dcm issue is ©2014 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.
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