nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2016‒10‒23
five papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Understanding the distribution of economic benefits from improving coastal and marine ecosystems By Kristine Pakalniete; Juris Aigars; Mikołaj Czajkowski; Solvita Strake; Ewa Zawojska; Nick Hanley
  2. Accounting for Price Endogeneity in Airline Itinerary Choice Models: An Application to Continental U.S. Markets By Virginie Lurkin; Laurie A. Garrow; Matthew J. Higgins; Jeffrey P. Newman; Michael Schyns
  3. Yield to Change: Modelling the Land-use Response to Climate-Driven Changes in Pasture Production By Levente Timar
  4. Local M-estimation with discontinuous criterion for dependent and limited observations By Myung Hwan Seo; Taisuke Otsu
  5. Ordered Consumer Search By Armstrong, Mark

  1. By: Kristine Pakalniete (AKTiiVS Ltd., Latvia); Juris Aigars (Latvian Institute of Aquatic Ecology); Mikołaj Czajkowski (Faculty of Economi Sciences, University of Warsaw); Solvita Strake (Latvian Institute of Aquatic Ecology); Ewa Zawojska (Faculty of Economi Sciences, University of Warsaw); Nick Hanley (University of St Andrews, Department of Geography and Sustainable Development)
    Abstract: The ecological status of coastal and marine waterbodies world-wide is threatened by multiple stressors, including nutrient inputs from various sources and increasing occurrences of invasive alien species. These stressors impact the environmental quality of the Baltic Sea. Each Baltic Sea country contributes to the stressors and, at the same time, is affected by their negative impacts on water quality. Understanding who benefits from improvements in coastal and marine waters is key to assessing public support for policies aimed at achieving such changes. We propose a new approach to account for variability in benefits related to differences in socio-demographics of respondents, by using a structural model of discrete choice. Our method (1) provides a convenient way of incorporating a wide range of socio-demographics as explanatory variables in conditional multinomial logit models without the risk of collinearity, and (2) is more statistically efficient than the alternative, typically used approaches. The new technique is applied in a study which examines the preferences of Latvian citizens towards improvements of the coastal and marine environment quality that could help the Baltic Sea waters of Latvia reach Good Environmental Status as required by the European Union's Marine Strategy Framework Directive. Applying the discrete choice experiment method, we find that overall, Latvians are willing to pay for reducing losses of biodiversity, for improving water quality for recreation by reduced eutrophication, and for reducing new occurrences of invasive alien species. A significant group within the sample seems not to value environmental improvements in the Baltic Sea, and, thus, is unwilling to support costly measures for achieving such improvements. The structural model of discrete choice reveals substantial heterogeneity among Latvians towards changes in the quality of coastal and marine waters of Latvia.
    Keywords: good environmental status; coastal and marine water quality; biodiversity; invasive alien species; eutrophication; discrete choice experiment; observed preference heterogeneity; socio-demographic characteristics; hybrid choice model
    JEL: C35 D12 H41 Q25 Q26 Q51 Q53 Q57 R50
    Date: 2016
  2. By: Virginie Lurkin; Laurie A. Garrow; Matthew J. Higgins; Jeffrey P. Newman; Michael Schyns
    Abstract: Network planning models, which forecast the profitability of airline schedules, support many critical decisions, including equipment purchase decisions. Network planning models include an itinerary choice model that is used to allocate air total demand in a city pair to different itineraries. Multinomial logit (MNL) models are commonly used in practice and capture how individuals make trade-offs among different itinerary attributes; however, none that we are aware of account for price endogeneity. This study formulates an itinerary choice model that is consistent with those used by industry and corrects for price endogeneity using a control function that uses several types of instrumental variables. We estimate our model using a database of more than 3 million tickets provided by the Airlines Reporting Corporation. Results based on Continental U.S. markets for May 2013 departures show that models that fail to account for price endogeneity overestimate customers’ value of time and result in biased price estimates and incorrect pricing recommendations. The size and comprehensiveness of our database allows us to estimate highly refined departure time of day preference curves that account for distance, direction of travel, number of time zones traversed, departure day of week and itinerary type (outbound, inbound or one-way). These time of day preference curves can be used by airlines, researchers, and government organizations in the evaluation of different policies such as congestion pricing.
    JEL: L11 L9 L93 M2
    Date: 2016–10
  3. By: Levente Timar (Motu Economic and Public Policy Research)
    Abstract: In contrast to most economic drivers of land-use change, climate-related drivers display substantial geographic variation. Accounting for this spatial heterogeneity is important in simulations of the land-use response to climate change. I use a discrete choice model to estimate the relationship between pasture yields and rural land use. Land-use predictions from the model respond to climate change through its effects on pasture yields. This econometric model provides the foundation for the development of a new module of the Land Use in Rural New Zealand (LURNZ) model, the Yield Change Module. In addition to enabling simulations of overall land-use change under different climate scenarios, the module also draws on the estimation results to allocate land-use change spatially. I employ the Yield Change Module to perform illustrative mid-century and end-of-century simulations of land use in a climate scenario characterised by a high level of greenhouse gas emissions (RCP 8.5). Yield changes in this scenario lead to an expansion (by nearly 600,000 hectares) of dairy area and a fall (by over 800,000 hectares) of sheep-beef area by the end of the century. The implied rate of land-use change is modest relative to that observed in New Zealand’s recent past
    Keywords: Land use, climate change, pasture production, LURNZ, Yield Change Module
    JEL: Q15 Q54
    Date: 2016–10
  4. By: Myung Hwan Seo; Taisuke Otsu
    Abstract: This paper examines asymptotic properties of local M-estimators under three sets of high-level conditions. These conditions are sufficiently general to cover the minimum volume predictive region, conditional maximum score estimator for a panel data discrete choice model, and many other widely used estimators in statistics and econometrics. Specifically, they allow for discontinuous criterion functions of weakly dependent observations, which may be localized by kernel smoothing and contain nuisance parameters whose dimension may grow to infinity. Furthermore, the localization can occur around parameter values rather than around a fixed point and the observation may take limited values, which leads to set estimators. Our theory produces three different nonparametric cube root rates and enables valid inference for the local M-estimators, building on novel maximal inequalities for weakly dependent data. Our results include the standard cube root asymptotics as a special case. To illustrate the usefulness of our results, we verify our conditions for various examples such as the Hough transform estimator with diminishing bandwidth, maximum score-type set estimator, and many others.
    Keywords: Cube root asymptotics, Maximal inequality, Mixing process, Partial identification, Parameter-dependent localization
    JEL: C12 C14
    Date: 2016–10
  5. By: Armstrong, Mark
    Abstract: The paper discusses situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search. Topics include: the existence of ordered search equilibria with symmetric sellers (all consumers first inspect the seller they anticipate sets the lowest price, and a seller which is inspected first by consumers will set the lowest price); the use of price and non-price advertising to direct search; the impact of consumers starting a new search at their previous supplier; and the incentive a seller can have to raise its own search cost. I also show how ordered search can be reformulated as a simpler discrete choice problem without search frictions or dynamic decision making.
    Keywords: advertising; consumer search; directed search; discrete choice; obfuscation; oligopoly; ordered search; sequential search
    JEL: D21 D43 D83 L11 L15 M37
    Date: 2016–10

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