nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2017‒07‒23
two papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Identification and Decompositions in Probit and Logit Models By Chung Choe; SeEun Jung; Ronald L. Oaxaca
  2. Willingness to pay for agricultural risk insurance as a strategy to adapt climate change By Mekonnen, Tigist

  1. By: Chung Choe (Hanyang University); SeEun Jung (Department of Economics, Inha University); Ronald L. Oaxaca (University of Arizona)
    Abstract: Probit and logit models typically require a normalization on the error variance for model identification. This paper shows that in the context of sample mean probability decompositions, error variance normalizations preclude estimation of the effects of group differences in the latent variable model parameters. An empirical example is provided for a model in which the error variances are identified. This identification allows the effects of group differences in the latent variable model parameters to be estimated.
    Keywords: Decompositions, Probit, Logit, Identification
    JEL: C35 J16 D81 J71
    Date: 2017–07
  2. By: Mekonnen, Tigist (UNU-MERIT, and Maastricht University)
    Abstract: Agricultural production is subject to high risk associated with environmental and agro-ecological conditions. Farmers continuously make decisions to mitigate the various adversities. This study evaluates farm households’ willingness to pay for agricultural risk insurance intervention introduced in Ethiopia in 2009. A bidding game approach is used to elicit willingness-to-pay. We use a unique data collected on farmers’ willingness to pay for production risk insurance covering 1500 farm households. The result from the first willingness to pay response model shows that on average, farmers are willing to pay a premium of 55 Ethiopian Birr. By increasing the efficiency of our estimation, a double-bounded dichotomous choice model is estimated in the follow-up willingness to pay response question. It indicates that farmers are willing to pay about 67 Ethiopian Birr to insurance coverage. The use of modern agricultural technologies such as high-yielding variety and inorganic fertilizer, low rainfall, large family size, and high rainfall type are potential indicators that determine farmers’ decision to adopt financial insurance. We also found farmer’s demand for insurance increases due to the changing extreme weather events. Therefore, the study provides information to agricultural policy makers and private companies to promote agricultural insurance and set the premium and enrollment unit.
    Keywords: Risk, uncertainty, technologies, insurance, contingent valuation methods, Ethiopia
    JEL: D22 D81 G22
    Date: 2017–06–22

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