nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2015‒10‒17
fourteen papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Does the number of discrete choice alternatives matter for respondents’ stated preferences? The case of tap water quality improvements By Mikołaj Czajkowski; Marek Giergiczny; Ewa Zawojska
  2. Utilizing the Discrete Choice Experiment Approach for Designing a Socially Efficient Cultural Policy: The case of municipal theaters in Warsaw By Aleksandra Wiśniewska; Mikołaj Czajkowski
  3. Trading between perceived risks and benefits related to biosimilar biological treatment in Crohn’s disease; discrete choice experiment among gastroenterologists By Baji, Petra; Gulácsi, László; Lovász, Barbara D.; Golovics, Petra A.; Brodszky, Valentin; Péntek, Márta; Rencz, Fanni; Lakatos, Péter L.
  4. Analysing farmers' preferences for collaborative arrangements: an experimental approach By Feil, Jan-Henning; Anastassiadis, Friederike; Mußhoff, Oliver; Kasten, Philipp
  5. Empirical modeling of production decisions of heterogeneous farmers with random parameter models By Philippe Koutchade; Alain Carpentier; Fabienne Féménia
  6. ‘Adapted’ Habitat Evaluation Procedure and Choice Experiment: substitutes or complements? By Anne Rozan; Nathalie Dumax; Bénédicte Rulleau
  7. Location choice of German multinationals in the Czech Republic. The importance of agglomeration economies By Veronika Hecht
  8. Structural Demand Estimation with Borrowing Constraints By Ouazad, Amine; Rancière, Romain
  9. The Effectiveness of Fiscal Stimuli for Working Parents By Henk-Wim de Boer; Egbert L.W. Jongen; Jan Kabatek
  10. The welfare effects of endogenous quality choice in cable television markets By Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
  11. Welche Faktoren beeinflussen die Optimalität der Investitionsentscheidungen konventioneller und ökologischer Schweinehalter? By Vollmer, Elisabeth; Hermann, Daniel; Mußhoff, Oliver
  12. On the decomposition of Generalized Additive Independence models By Michel Grabisch; Christophe Labreuche
  13. Complexity and doctor choices when discussing contraceptives By Fiebig, D.G.;; Viney, R.;; Haas, M.;; Knox, S.;; Street, D.;; Weisberg, E.;; Bateson, D.;
  14. Is Organic Agriculture and Fair Trade Certification a way out of Crisis? Evidence from Black Pepper Farmers in India By Parvathi, Priyanka; Waibel, Hermann

  1. By: Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Marek Giergiczny (Faculty of Economic Sciences, University of Warsaw); Ewa Zawojska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Contingent valuation is among the most widely used techniques for studying consumers’ preferences. Nevertheless, whether respondents reveal their true preferences in contingent valuation surveys is still the subject of academic debate. The existing literature indicates that the truthful disclosure of preferences pivots on the number of alternatives presented in a single choice task. On a theoretical basis, the use of a two-alternative task format has long been recommended because of its incentive-compatible properties, which ensure that respondents’ disclosure of their true preferences constitutes their optimal strategy. However, the empirical literature presents nascent evidence that providing more than two choice alternatives may increase the respondents’ likelihood of finding an option that satisfactorily matches their preferences; consequently, a multiple-alternative task format likely enhances the accuracy of preference disclosures. Furthermore, empirical studies often employ multiple alternatives for a single task because of statistical efficiency gains. The lack of consensus about the impact of the number of alternatives on respondents’ truthfulness when stating their preferences in contingent valuation surveys motivates this study. Using data from a discrete choice experiment, we examine whether willingness-to-pay (WTP) estimates depend on the number of alternatives provided for a single choice task. We employ a split-sample design that uses two- and three-alternative formats in a contingent valuation survey of proposed public policies for the improvement of tap water quality (iron and chorine content, hardness) in Milanówek, a town in the Warsaw agglomeration in Poland. Drawing on a generalized mixed logit model with scale heterogeneity, we find no significant differences in the mean WTP values elicited with two- and three-alternative tasks, while the WTP estimates based on three-alternative tasks appear to have relatively lower standard errors compared with two-alternative tasks. This finding indicates that using three or more alternatives per choice task may offer a way to increase efficiency without biasing the results.
    Keywords: stated preference methods; contingent valuation; discrete choice experiment; incentive compatibility; number of alternatives; field study; tap water quality
    JEL: Q51 Q25 D12 D82 C25
    Date: 2015
  2. By: Aleksandra Wiśniewska (Faculty of Economic Sciences, University of Warsaw); Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw)
    Abstract: While public support for culture, and performing arts in particular has become a less self-evident privilege all over Europe than in the past, the economic evidence for benefits a society gains from those goods has become essential for both of the following: scientific research in the area of cultural economics and cultural policy. Although the non-market valuation has been employed as a tool for measuring social benefits generated by cultural resources, the budget constraint has not been considered in most studies regarding the performing arts. Due to that constraint, the crucial question that decision-makers have to answer is then not “whether to finance” or “how big the support should be”, but rather “how to allocate scarce resources”. The aim of our study is to investigate socially preferred ways of allocating public resources in the context of the types of performances offered by municipal theaters in Warsaw. The problem investigated is a current issue for local policy-making, but in a broader sense, it illustrates how state-of-the-art stated preference methods could be employed to support cultural policy. We find that inhabitants of Warsaw assign positive value to the broader accessibility of municipal theaters, and their willingness to pay for making the theaters a truly public good (by introducing a program of highly discounted tickets) exceeds the costs of such a policy. However, we also find that the cost-benefit relationship varies across theaters with different types of plays in their repertories. Our results imply a different level of socially efficient support for experimental, drama, children’s and entertainment theaters.
    Keywords: cultural economics, theater, non-market valuation, discrete choice experiment, public expenditures
    JEL: Z1 Z11 Z18 D61
    Date: 2015
  3. By: Baji, Petra; Gulácsi, László; Lovász, Barbara D.; Golovics, Petra A.; Brodszky, Valentin; Péntek, Márta; Rencz, Fanni; Lakatos, Péter L.
    Abstract: Objective: The objective of the study is to explore preferences of gastroenterologists for biosimilar drugs in Crohn’s Disease and reveal trade-offs between the perceived risks and benefits related to biosimilar drugs. Method: Discrete choice experiment was carried out involving 51 Hungarian gastroenterologists in May, 2014. The following attributes were used to describe hypothetical choice sets: 1) type of the treatment (biosimilar/originator) 2) severity of disease 3) availability of continuous medicine supply 4) frequency of the efficacy check-ups. Multinomial logit model was used to differentiate between three attitude types: 1) always opting for the originator 2) willing to consider biosimilar for biological-naïve patients only 3) willing to consider biosimilar treatment for both types of patients. Conditional logit model was used to estimate the probabilities of choosing a given profile. Results: Men, senior consultants, working in IBD center and treating more patients are more likely to willing to consider biosimilar for biological-naïve patients only. Treatment type (originator/biosimilar) was the most important determinant of choice for patients already treated with biologicals, and the availability of continuous medicine supply in the case biological-naïve patients. The probabilities of choosing the biosimilar with all the benefits offered over the originator under current reimbursement conditions are 89% vs 11% for new patients, and 44% vs 56% for patients already treated with biological. Conclusions: Gastroenterologists were willing to trade between perceived risks and benefits of biosimilars. The continuous medical supply would be one of the major benefits of biosimilars. However, benefits offered in the scenarios do not compensate for the change from the originator to the biosimilar treatment of patients already treated with biologicals.
    Keywords: risk perception, biologicals, biosimilars, Crohn’s Disease, Discrete Choice Experiment, Preferences
    JEL: D12 I12 I18
    Date: 2015–10–01
  4. By: Feil, Jan-Henning; Anastassiadis, Friederike; Mußhoff, Oliver; Kasten, Philipp
    Abstract: This paper analyses farmers' preferences for farm-level collaborative arrangements (CAs) based upon a discrete choice experiment conducted in Germany. A mixed logit and a generalized multinominal logit model are used to determine whether farmers' decisions to establish a CA with a potential partner are influenced by non-monetary attributes like the age of the partner, the years of acquaintance with the partner or the production activities of the partner. Moreover, a monetary attribute is included to calculate the average individual's willingness-to-pay or 'implicit price' for a change in each of the non-monetary attributes. The results show that farmers' preferences for CAs increase, the closer their age is, the more years of (positive) acquaintance between them exist and the more similar their production activities are.
    Keywords: Farm-level collaborative arrangement, discrete choice experiment, generalized multinominal logit, Farm Management, Institutional and Behavioral Economics,
    Date: 2015
  5. By: Philippe Koutchade; Alain Carpentier; Fabienne Féménia
    Abstract: Evidences of the effects of unobserved heterogeneity in micro-econometric models are now pervasive in many applied economics fields. This article investigates this issue for agricultural production choice models. Farms’ and farmers’ unobserved heterogeneity can be accounted for in micro-econometric agricultural production choice models by relying on available modeling and inference tools. The random parameter (RP) framework allows achieving this goal in a fairly flexible way. This modeling framework has already been successfully used in numerous empirical studies covering many topics. It simply considers RP versions of standard models. Extensions of the Expectation-Maximization algorithms have been specifically developed in the computational statistics literature for estimating RP models. They appear to be well suited for large statistical models such as micro-econometric agricultural production choice models. The estimation of a RP multi-crop econometric model shows that unobserved heterogeneity matters in a sample of French farmers specialized in cash grain production covering a relatively small geographical area. The key parameters of this RP model significantly vary across farms. Simulation results obtained from the estimated RP model confirm that the sampled farmers’ choices respond heterogeneously to homogenous economic incentives. Ignoring this heterogeneity impacts both the distribution and the magnitude of the simulated effects.
    Keywords: Unobserved heterogeneity, random parameter models, agricultural production choices, policy simulation, SEM algorithms
    JEL: Q12 C13 C15
    Date: 2015
  6. By: Anne Rozan; Nathalie Dumax; Bénédicte Rulleau
    Abstract: Originally developed to evaluate the environmental cost of development plans, the “adapted” Habitat Evaluation Procedure (HEP) seeks to value environmental costs and benefits through a non-monetary metric, the habitat unit. The environmental benefits of creating or restoring a natural area are evaluated on the basis of the number of habitat units equivalent to an mproved supply of ecosystem services. But such a plan may generate other benefits for the inhabitants of nearby towns, recreational benefits for instance. These benefits can be measured by a traditional economic valuation method, such as a choice experiment (CE). We used the “adapted” HEP and a CE on the same study site to test the potential complementarity of the two methods and to identify the potential risks and benefits of such a double valuation.
    Keywords: “adapted” habitat evaluation procedure, choice experiment, ecosystem services, Rhine River, wetland restoration.
    JEL: Q51 Q57
    Date: 2015
  7. By: Veronika Hecht
    Abstract: This paper analyses the location choice of German investors in the Czech Republic based on a unique dataset covering all Czech companies with a German equity holder in 2010. The identification of the regional determinants of foreign direct investment (FDI) location is an important regional policy issue as FDI is supposed to improve the labour market conditions of the host region. Using a nested logit approach the impact of agglomeration economies, labour market conditions and distance on the location choice decision is investigated. The main result of the paper is that apart from a low distance to the location of the parent company the attractiveness of a Czech district for German investors is mainly driven by agglomeration economies. Besides localisation economies the agglomeration of German companies in a region plays a decisive role. The importance of labour market characteristics differs between investment sectors, sizes and periods.
    Keywords: Location choice, FDI, Multinational enterprises, Germany, Czech Republic, Agglomeration Economies
    JEL: F24 R12 R30
    Date: 2015–10
  8. By: Ouazad, Amine; Rancière, Romain
    Abstract: Structural models of housing or product choice use observed demand to estimate household preferences. However, household demand may be partly determined by borrowing constraints, limiting households’ choice set. Such borrowing constraints will differ across locations, households, and years. We put forward a model of neighborhood choice with borrowing constraints that accounts for mortgage credit approval rates. We estimate the model's parameters using micro-level data on households, property transactions and mortgage applications for the San Francisco Bay. Approval rates vary significantly both across households and across neighborhoods. The model with borrowing constraints yields significantly higher estimated willingness to pay to live close to good schools and in majority-white neighborhoods. The model provides general equilibrium estimates of the impact of a relaxation of lending standards. Between 2000 and 2006, the model provides two out-of-sample predictions: (i) a compression of the price distribution and (ii) a decline in black households' exposure to white households. Both predictions are supported by empirical observation.
    Keywords: demand estimation; house prices; housing; mortgage credit; segregation
    JEL: G21 R21 R23
    Date: 2015–10
  9. By: Henk-Wim de Boer (CPB Netherlands Bureau for Economic Policy Analysis; and Faculty of Economics and Business Administration, VU University Amsterdam); Egbert L.W. Jongen (CPB Netherlands Bureau for Economic Policy Analysis); Jan Kabatek (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Institute for the Study of Labor (IZA); and Netspar)
    Abstract: To promote the labor participation of parents with young children, governments employ a number of fiscal instruments. Prominent examples are childcare subsidies and in-work benefits. However, which policy works best for employment is largely unknown. We study the effectiveness of different fiscal stimuli in an empirical model of household labor supply and childcare use. We use a large and rich administrative data set for the Netherlands. Largescale reforms in childcare subsidies and in-work benefits in the data period facilitate the identification of the structural parameters. We find that an in-work benefit for secondary earners that increases with income is the most effective way to stimulate total hours worked. Childcare subsidies are less effective, as substitution of other types of care for formal care drives up public expenditures. In-work benefits that target both primary and secondary earners are much less effective, because primary earners are rather unresponsive to financial incentives. Classification-C25, C52, H31, J22
    Keywords: Discrete choice, household labor supply, latent classes, differences-indifferences, work and care policies
    Date: 2015–09
  10. By: Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
    Abstract: We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.
    Keywords: Industrial organization, endogenous quality, imperfect competition, monopoly, cable television, quality distortions, welfare, quality markup
    JEL: L15 L13 L82 L96 C51
    Date: 2015–08
  11. By: Vollmer, Elisabeth; Hermann, Daniel; Mußhoff, Oliver
    Abstract: In dieser Studie werden die Einflussfaktoren auf die Abweichungen der Investitionsentscheidungen deutscher Schweinehalter vom optimalen Investitionsverhalten nach Realoptionsansatz (ROA) analysiert. Hierzu wird ein Experiment durchgeführt, in dem ökologische und konventionelle Schweinehalter die Möglichkeit haben, in einen konventionellen oder in einen ökologischen Maststall zu investieren. Normative Benchmarks gemäß ROA werden ermittelt und mit den beobachteten Investitionsentscheidungen der Schweinehalter verglichen. Zur Analyse der Faktoren, die die Abweichungen beeinflussen, wird ein multinomiales gemischtes Logit-Modell geschätzt. Unsere Ergebnisse zeigen signifikante Einflüsse nicht-monetärer Variablen: Zum einen wird ein signifikanter Framingeffekt beobachtet. Das bedeutet, dass sich die Abweichungen vom ROA verändern, wenn die Schweinehalter in die praktizierte oder in die nicht-praktizierte Bewirtschaftungsweise investieren. Zum anderen wird ein Lerneffekt ausgemacht: Die steigende Erfahrung im Experiment führt zu späteren Investitionsentscheidungen. Außerdem wird der Einfluss betriebsspezifischer und soziodemografischer Variablen auf die Abweichungen festgestellt.
    Keywords: Investitionsverhalten, Experimentelle Ökonomik, Schweinehaltung, Realoptionen, Institutional and Behavioral Economics, Livestock Production/Industries, Risk and Uncertainty,
    Date: 2015
  12. By: Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Christophe Labreuche (Thales Research and Technology)
    Abstract: The GAI (Generalized Additive Independence) model proposed by Fishburn is a generalization of the additive utility model, which need not satisfy mutual preferential independence. Its great generality makes however its application and study difficult. We consider a significant subclass of GAI models, namely the discrete 2-additive GAI models, and provide for this class a decomposition into nonnegative monotone terms. This decomposition allows a reduction from exponential to quadratic complexity in any optimization problem involving discrete 2-additive models, making them usable in practice
    Keywords: multiattribute utility; multichoice games
    JEL: C4 C6 C71
    Date: 2015–09
  13. By: Fiebig, D.G.;; Viney, R.;; Haas, M.;; Knox, S.;; Street, D.;; Weisberg, E.;; Bateson, D.;
    Abstract: In order to better understand choice behaviour, econometric models need to be able to reflect the complexity of decisions that individuals routinely face. We investigate the role of choice complexity in modelling medical decision-making in the case of a doctor choosing which specific contraceptive products to discuss with their patient before ultimately making a recommendation. Clinical vignettes describing patients, developed using stated preference methods, are presented to a sample of Australian general practitioners. An econometric model is developed that captures two salient sources of complexity. The first is associated with patients with particularcombinations of clinical and demographic attributes that induce uncertainty around what product to recommend while the second captures variation in the ability of doctors to find appropriate patient-product matches. We are especially interested in the tendencies of doctors to discuss long-acting reversible contraception (LARC) in order to determine whether part of the explanation for the relatively low uptake of LARC in Australia is reluctance on the part of some doctors to even discuss these products.
    Keywords: choice models; complex decisions; medical decision making; long-acting reversible contraception; clinical vignettes;
    JEL: I10 J13 C25 C81
    Date: 2015–09
  14. By: Parvathi, Priyanka; Waibel, Hermann
    Abstract: This article examines the impact of a joint organic and fair trade certification on productivity and material costs based on data collected from 277 smallholder black pepper farmers in India. We estimate a multinomial endogenous switching regression along with a counterfactual analysis to ascertain the effects of certification. Our results indicate that certified farmers have higher yields. Counterfactual study shows that conventional farmers can increase their yields by 35% with less than half the costs by venturing into organic and fair trade networks. Further, treatment and transitional heterogeneity effects reveal that a joint organic and fair trade certification has the strongest effect on productivity for the less successful farmers.
    Keywords: Impact evaluation, Eendogenous Switching Regression, Organic Farming, Fair Trade, Crop Production/Industries, Environmental Economics and Policy, Productivity Analysis,
    Date: 2015

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