nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2014‒11‒22
nine papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Nonparametric Identification of Endogenous and Heterogeneous Aggregate Demand Models: Complements, Bundles and the Market Level By Dunker, Fabian; Hoderlein, Stefan; Kaido, Hiroaki
  2. Location Choices of highly Educated Foreign Workers: the Importance of Urban Amenities By Or Levkovich; Jan Rouwendal
  3. The Magnitude of Menu Costs: A Structural Estimation By Andrea Stella
  4. Probabilistic Choice and Congestion Pricing with Heterogeneous Travellers and Price-Sensitive Demand By Paul Koster; Erik T. Verhoef; Simon Shepherd; David Watling
  5. Logit Price Dynamics By Anton Nakov; James Costain
  6. Crime, Employment and Social Welfare: an Individual-level Study on Disadvantaged Males By Geert Mesters; Victor van der Geest; Catrien Bijleveld
  7. The Swedish car fleet model By Beser Hugosson, Muriel; Algers, Staffan; Habibi, Shiva; Sundbergh, Pia
  8. Migration, Education and the Gender Gap in Labour Force Participation By Ilhom Abdulloev; Ira N. Gang; Myeong-Su Yun
  9. Understanding the differences in in-hospital mortality between Scotland and England By Maria Jose Aragon; Martin Chalkley

  1. By: Dunker, Fabian (University of Goettingen and Boston College); Hoderlein, Stefan (Boston College); Kaido, Hiroaki (Boston University)
    Abstract: This paper studies nonparametric identification in market level demand models for differentiated products. We generalize common models by allowing for the distribution of heterogeneity parameters (random coefficients) to have a nonparametric distribution across the population and give conditions under which the density of the random coefficients is identified. We show that key identifying restrictions are provided by (i) a set of moment conditions generated by instrumental variables together with an inversion of aggregate demand in unobserved product characteristics; and (ii) an integral transform (Radon transform) that maps the random coefficient density to the aggregate demand. This feature is shown to be common across a wide class of models, and we illustrate this by studying leading demand models. Our examples include demand models based on the multinomial choice (Berry, Levinsohn, Pakes, 1995), the choice of bundles of goods that can be substitutes or complements, and the choice of goods consumed in multiple units.
    Date: 2014–10
  2. By: Or Levkovich; Jan Rouwendal (VU University Amsterdam)
    Abstract: In the globalized economy the presence of migrants is essential for urban and regional growth, and it is therefore important to know what makes a city an attractive place for highly skilled migrants. This paper aims to shed light on this issue by considering the location choice of highly-educated foreign workers, and if and how their valuation of urban amenities differs from domestic workers. To do so, we apply a residential location-choice model to estimate the attractiveness of residential locations in the Dutch Randstad for low and high-skilled, domestic and foreign workers, and calculate and compare their willingness to pay for each of these amenities.
    Keywords: urban amenities, foreign workers
    JEL: R53 R11
    Date: 2014–07–22
  3. By: Andrea Stella (Federal Reserve Board)
    Abstract: The leading theories on monetary policy non-neutrality require some degree of price rigidity, which is often introduced by assuming fixed costs of price adjustment, also known as menu costs. Empirical evidence on the existence of such menu costs is scarce. Using weekly data on prices, costs and units sold by a supermarket chain, I estimate a discrete-choice dynamic model of a multi-product firm facing menu costs with a moment inequalities approach. This empirical methodology allows me to estimate two types of fixed costs of price adjustment: costs that are independent of the number of items that change prices and costs that are incurred at each item’s price change. I find that both types of menu costs exist and are substantial. The total cost from changing prices is estimated to be bounded between 0.22% and 0.59% of revenues and between 11.05% and 29.32% of net margins, depending on the specification. The first type of fixed cost accounts for up to 85% of this expense, pointing to substantial economies of scope in price setting.
    Date: 2014
  4. By: Paul Koster; Erik T. Verhoef (VU University Amsterdam, the Netherlands); Simon Shepherd; David Watling (University of Leeds, United Kingdom)
    Abstract: This paper deals with first-best and second-best congestion pricing of a stylised two-link network with probabilistic route choice of travellers. Travellers may have heterogeneous values of travel times and may differ in their idiosyncratic route preferences. We derive first-best and second-best tolls taking into account how the overall network demand responds to generalized costs including the tolls that are levied. We show that with homogeneous values of times the welfare losses of second-best pricing, of one link only, may be smaller if route choice is probabilistic. Furthermore, we show that with heterogeneous values of times, common second-best tolls and group-differentiated tolls can be very close when route choice is governed by random utility maximisation, leading to low welfare losses from the inability to differentiate tolls.
    Keywords: Stochastic User Equilibrium, Second-best Congestion Pricing, Preference Heterogeneity, Scale Heterogeneity, Probabilistic Choice
    JEL: R40 R41 R48
    Date: 2014–06–27
  5. By: Anton Nakov (ECB and CEPR); James Costain (Bank of Spain)
    Abstract: We model retail price stickiness as the result of errors due to costly decision-making. Under our assumed cost function for the precision of choice, the timing of price adjustments and the prices firms set are both logit random variables. Errors in the prices firms set help explain micro "puzzles" relating to the sizes of price changes, the behavior of adjustment hazards, and the variability of prices and costs. Errors in adjustment timing increase the real effects of monetary shocks, by reducing the "selection effect". Allowing for both types of errors also helps explain how trend inflation affects price adjustment.
    Date: 2014
  6. By: Geert Mesters; Victor van der Geest; Catrien Bijleveld (VU University Amsterdam)
    Abstract: We test economic and sociological theories for the relationship between employment and crime, where social welfare is used as an identifying mechanism. We consider a sample of disadvantaged males from The Netherlands who are observed between ages 18 and 32 on a monthly time scale. We simultaneously model the offending, employment and social welfare variables using a dynamic discrete choice model, where we allow for state dependence, reciprocal effects and time-varying unobserved heterogeneity. We find significant negative bi-directional structural effects between employment and property crime. Robustness checks show that only regular employment is able to significantly reduce the offending probability. Further, a significant uni-directional effect is found for the public assistance category of social welfare on property offending. The results highlight the importance of economic incentives for explaining the relationship between employment and crime for disadvantaged individuals. For these individuals the crime reducing effects from the public assistance category of social welfare equivalent to those from employment, which suggests the importance of financial gains. Further, the results suggest that stigmatizing effects from offending reduce the future employment probability.
    Keywords: dynamic discrete choice, strain, social control, state dependence, reciprocal, unobserved heterogeneity
    JEL: K42 C32 C33
    Date: 2014–07–22
  7. By: Beser Hugosson, Muriel (KTH/TLA); Algers, Staffan (KTH/TLA); Habibi, Shiva (KTH/TLA); Sundbergh, Pia (Transport Analysis (Sweden))
    Abstract: The composition of the car fleet with respect to age, fuel consumption and fuel types plays an important role on environmental effects, oil dependency and energy consumption. In Sweden, a number of different policies have been implemented to support CO2 emission reductions. In order to evaluate effects of different policies, a model for the evolution of the Swedish car fleet was developed in 2006. The model has been used in a number of projects since then, and it is now possible to compare forecasts with actual outcomes. Such evidence is relatively rare, and we think it may be useful to share our experience in this respect. We give a brief overview of the Swedish car fleet model. Then we describe policies that have been implemented in recent years and the evolution of the Swedish car fleet. We then focus on two projects which enable comparison with actual outcomes, and analyse the differences between forecasts and outcomes. We find that the model has weaknesses in catching car buyers’ preferences of new technology. When this is not challenged too much, the model can forecast reasonably well on an aggregate level. We also find that he model is quite sensitive to assumptions on future supply. This is not so much related to the model, but to its use. Depending on the use of the forecasts – be it car sales, emissions or fuel demand – it may be necessary to use different supply scenarios to get an idea of the robustness of the forecast result.
    Keywords: Clean car policy; Car fleet model; Forecasting; Model evaluation; Scrapping model; Nested logit
    JEL: R40
    Date: 2014–09–29
  8. By: Ilhom Abdulloev (Open Societies Institute, Dushanbe); Ira N. Gang; Myeong-Su Yun
    Abstract: Women who want to work often face many more hurdles than men. This is true in Tajikistan where there is a large gender gap in labour force participation. We highlight the role of two factors – international migration and education – on the labour force participation decision and its gender gap. Using probit and decomposition analysis, our investigation shows that education and migration have a significant association with the gender gap in labour force participation in Tajikistan. International emigration from Tajikistan, in which approximately 93.5% of the participants are men, reduces labour force participation by men domestically; increased female education, especially at the university and vocational level, increases female participation. Both women acquiring greater access to education and men increasing their migration abroad contribute to reducing the gender gap.
    Keywords: migration, education, gender gap, labour force participation, Tajikistan
    JEL: J01 J16 O15
    Date: 2014–06
  9. By: Maria Jose Aragon (Centre for Health Economics, University of York, UK); Martin Chalkley (Centre for Health Economics, University of York, UK)
    Abstract: Aims-We describe differences in in-hospital mortality between Scotland and England and test whether these differences are robust to controlling for the case-mix of patients. In spite of Scotland and England having much in common in regard to their hospital systems and populations we observe trends in-hospital mortality – the percentage of elective and emergency Continuous Inpatient Spells (CIS) that ended in death – that are different: England’s in-hospital mortality rates have decreased faster than Scotland’s for both types of admissions. Data-Individual patient data from England (HES) and Scotland (SMR01) for the period 2003/04 – 2011/12. Episode data is linked into CIS. Sample: Elective and emergency admissions, including day cases and excluding maternity. Methods-Logit regression of in-hospital death on country and financial year dummies, and their interaction, controlling for age group, gender, deprivation decile, and HRG of the first episode; separately for elective and emergency admissions. Results-For elective admissions, England has a lower initial in-hospital mortality rate than Scotland, and this rate decreases in both countries but the decrease has been faster in England. For emergency admissions, England starts with a slightly higher in-hospital mortality rate and both countries in-hospital mortality rates reduce throughout the period but England’s does so faster. Conclusions-There are differences in in-hospital mortality between Scotland and England; these differences increase over time and persist when we account for patient characteristics. It is important to understand the causes and consequences of these differences and we make a number of suggestions for future research on this issue.
    Date: 2014–10

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.
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.