nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2015‒04‒11
six papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Which demand systems can be generated by discrete choice? By Armstrong, Mark; Vickers, John
  2. Willingness-to-pay for sugar fortification in Western Kenya By Pambo, Kennedy Otieno; Otieno, David Jakinda; Okello, Julius Juma
  3. Consumer preference and willingness to pay for fish farmed in treated wastewater in Ghana By Gebrezgabher, Solomie A.; Amewu, Sena; Amoah, Philip
  5. The Value of Payment Instruments: Estimating Willingness to Pay and Consumer Surplus By Tai Lam; Crystal Ossolinski
  6. A fixed effects ordered choice model with flexible thresholds with an application to life-satisfaction By Yaman, F.; Cubí‐Mollá, P.

  1. By: Armstrong, Mark; Vickers, John
    Abstract: We provide a simple necessary and sufficient condition for when a multiproduct demand system can be generated from a discrete choice model with unit demands.
    Keywords: Discrete choice, unit demand, multiproduct demand functions, demand theory
    JEL: D0 D11 L0
    Date: 2015–04
  2. By: Pambo, Kennedy Otieno; Otieno, David Jakinda; Okello, Julius Juma
    Abstract: Food fortification presents practical and cost-effective alternative to the fight against micronutrient malnutrition. Vitamin A deficiency and lack of iron bears the greatest economic importance in Kenya. Consequently, the National Food Security and Nutrition Policy in Kenya focus on pilot efforts aimed at fortifying processed foods with important micronutrients such as vitamin A. However, consumers remains the most important link in the food fortification equation through their purchase decisions. This study therefore, assessed the consumers’ willingness-to-pay for fortified sugar using choice experiment approach, on a sample of 162 sugar consumers drawn from Western Kenya. The results revealed that consumers are willing to pay positive premiums for fortified sugar attributes, except the attribute involving a colour change from white/brown to yellowish. These findings offer useful insights for the development of preference-based sugar fortification programmes in Kenya. Moreover, the results would guide formulation of policies against micronutrient malnutrition in Kenya and other developing countries, with similar conditions.
    Keywords: Vitamin A deficiency, fortification, sugar, choice experiment., Food Consumption/Nutrition/Food Safety, Health Economics and Policy, International Development,
    Date: 2015–07
  3. By: Gebrezgabher, Solomie A.; Amewu, Sena; Amoah, Philip
    Abstract: The reuse of treated wastewater for aquaculture has been practiced in several countries and has a potential to create a viable fish farming business in low income countries. However, wastewater aquaculture practices which satisfy health and hygiene guidelines and standards will not be viable if consumers are unwilling to purchase fish reared in treated wastewater. In this study we investigate consumers’ preference and willingness to pay for fish farmed in treated wastewater in Ghana. A consumer survey was conducted in Kumasi. We utilize a dichotomous-choice contingent valuation methodology to estimate willingness to pay for fresh Tilapia and smoked Catfish farmed in treated wastewater and analyze factors that affect consumer choice. Consumers in the survey ranked price, size and quality of fish measured by taste and freshness as the most important product attributes influencing their decision prior to purchasing fish. Source of fish is among the least important product attributes influencing consumers’ decision. Results indicate that surveyed consumers generally accept fish reared in treated wastewater if lower prices are offered. Socioeconomic factors such as household income, education and family size significantly determine consumers’ willingness to pay. Furthermore, results indicate that households with children are more likely to pay for smoked Catfish compared to fresh Tilapia indicating that postharvest processing of fish might be perceived as safer and thus increases consumers’ willingness to pay for smoked Catfish. The results of this study provide better understanding of fish consumers’ buying behavior and their perceptions of and attitude towards fish reared in treated wastewater. Moreover, results can contribute to identifying key product attributes that need to be targeted for improvement if sales of fish farmed in treated wastewater is to be achieved.
    Keywords: Wastewater aquaculture, farmed fish, dichotomous choice, willingness to pay, Health Economics and Policy, International Development, Land Economics/Use,
    Date: 2015–07
  4. By: Masamune Iwasawa (Graduate School of Economics, Kyoto University, Research Fellow of Japan Society for the Promotion of Science)
    Abstract: Estimation results obtained by parametric models may be seriously misleading when the model is misspecified or poorly approximates the true model. This study proposes two tests that jointly test the specifications of multiple response probabilities in unordered multino- mial choice models. Both test statistics are asymptotically chi-square distributed, consistent against a fixed alternative, and able to detect a local alternative approaching to the null at a rate slower than the parametric rate. We show that rejection regions can be calculated by a simple parametric bootstrap procedure, when the sample size is small. The size and power of the tests are investigated by Monte Carlo experiments.
    Date: 2015–03
  5. By: Tai Lam (Reserve Bank of Australia); Crystal Ossolinski (Reserve Bank of Australia)
    Abstract: This paper draws on a survey of consumers' willingness to pay surcharges to use debit cards and credit cards, rather than cash. Just as the price a consumer is willing to pay for a good or service is indicative of the value he/she places on that item, the willingness to pay a surcharge to use a payment method reflects that method's value to that customer, relative to any alternatives. We find a wide dispersion in the willingness to pay for the use of cards. Around 60 per cent of consumers are unwilling to pay a 0.1 per cent surcharge, which suggests that for these individuals, the net benefits of cards are very small or that cash is actually preferred. At the other end of the distribution, some individuals (around 5 per cent) are willing to pay more than a 4 per cent surcharge, indicating they place a substantial value on paying using cards. On average, consumers have a higher willingness to pay for the use of credit cards than debit cards. This difference can be viewed as the additional value placed on the non-payment functions – rewards and the interest-free period – of credit cards. We estimate that on average credit card holders place a value of 0.6 basis points on every 1 basis point of effective rewards rebate. Based on the survey data and information on the costs to merchants of accepting payment methods, we can predict the mix of cash, debit card and credit card payments chosen by consumers under different levels of surcharging and explore the implications for the efficiency of the payments system. In particular, the consumer surplus in a scenario where merchants do not surcharge and the costs of all payment methods are built into retail prices can be compared with that where merchants surcharge based on payment costs and retail prices are correspondingly lower. Our findings suggest that cost-based surcharging leads to some consumers switching to less costly payment methods, resulting in greater efficiency of the payment system and an increase in consumer surplus of 13 basis points per transaction.
    Keywords: discrete choice experiment; consumer payment choice; consumer surplus; retail payment systems
    JEL: C83 D12 D61 E42
    Date: 2015–03
  6. By: Yaman, F.; Cubí‐Mollá, P.
    Abstract: In many contexts reported outcomes in a rating scale are modeled through the existence of a latent variable that separates the categories through thresholds. The literature has not been able to separate the effect of a variable on the latent variable from its effect on threshold parameters. We propose a model which incorporates (1) individual fixed effects on the latent variable, (2) individual fixed effects on the thresholds and (3) threshold shifts across time depending on observable. Importantly, the latent variable and the threshold specifications can include common variables. In order to illustrate the estimator, we apply it to a model of life satisfaction using the GSOEP dataset. We demonstrate that important differences can arise depending on the choice of the model. Our model suggests that threshold shifts are statistically and quantitatively important. Factors which increase reported life-satisfaction are due both to positive effects on the latent variable AND to shifting thresholds to the left, while factors which decrease reported life satisfaction are due to negative effects on the latent variable AND to shifting thresholds to the right.
    Keywords: Ordered choice; fixed effects; subjective well-being; life-satisfaction

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