nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2017‒08‒06
three papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Choosing the future: economic preferences for higher education using discrete choice experiment method By Mikołaj Czajkowski; Tomasz Gajderowicz; Marek Giergiczny; Gabriela Grotkowska; Urszula Sztandar-Sztanderska
  2. Discrete Choice Models for Commuting Interactions By Jan J. Rouwendal; Or Levkovich; Ismir Mulalic
  3. Economic Valuation of Forest Ecosystem Services in Kenya: Implication for Design of PES Schemes and Participatory Forest Management By Boscow Okumu; Edwin Muchapondwa

  1. By: Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Tomasz Gajderowicz (Faculty of Economic Sciences, University of Warsaw); Marek Giergiczny (Faculty of Economic Sciences, University of Warsaw); Gabriela Grotkowska (Faculty of Economic Sciences, University of Warsaw); Urszula Sztandar-Sztanderska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: This study illustrates how respondents’ stated choices (the discrete choice experiment method) combined with the random utility framework can be used to model preferences for higher education. The flexibility offered by stated preference data circumvents limitations of other approaches, and allows quantifying young people’ preferences for selected attributes of higher education programs that are typically highly correlated in revealed preference data. The empirical study presented here is based on a survey of 20,000 Polish respondents aged 18-30, who stated their preferences for higher education programs in carefully prepared hypothetical choice situations. The attributes we considered include tuition fee, expected salary after graduation, quality of institution, interest in the field of study, distance from home, and mode of study. Using random parameters and latent class mixed multinomial logit models, we can formally describe young peoples’ preferences, and identify the financial trade-offs they are willing to make, that is, estimate their willingness to pay for specific attribute levels in terms of increased tuition fees or expected salary after graduation. Accounting for respondents’ observed and unobserved preference heterogeneity, we address a few research questions related to, for example, distinct preferences of students whose neither parent attained tertiary education, students from lower socio-economic groups, or students of a particular gender. Overall, we demonstrate how stated preference methods can be a useful tool for exploring economic preferences, better understanding the determinants of choices, forecasting, and designing the services offered by higher education institutions in an optimal way.
    Keywords: higher education institution choice, random utility model, stated preferences, discrete choice experiment
    JEL: I23 D12 H52
    Date: 2017
  2. By: Jan J. Rouwendal (Vrije Universiteit Amsterdam; Tinbergen Institute, The Netherlands); Or Levkovich (Vrije Universiteit Amsterdam); Ismir Mulalic (DTU, KRAKS)
    Abstract: An emerging quantitative spatial economics literature models commuting interactions by a gravity equation that is mathematically equivalent to a multinomial logit model. This model is widely viewed as restrictive because of the independence of irrelevant alternatives (IIA) property that links substitution behavior in response to changes in the attractiveness of choice alternatives to choice probabilities in a mechanistic way. This is relevant for counterfactual analysis. In this paper we examine the appropriateness of the commuting model from a theoretical as well as an empirical point of view. We show that conventional specification tests of the multinomial logit model are of limited use when alternative specific constants are used, as is common in the recent literature, and offer no information with respect to the validity of IIA. In particular, we show that maximum likelihood estimation of relevant nested logit model is impossible because the crucial parameters are not identified. We discuss cross-nested and mixed logit as alternatives. We argue that a comparison between predicted and actual changes in commuting flows in response to a change in the attractiveness of choice alternatives provides a more informative test for the validity of the multinomial logit model for commuting interaction and report the results of such a test – as well as others – for data referring to Copenhagen.
    Keywords: quantitative spatial economics; multinomial logit; mixed logit; independence of irrelevant alternatives
    JEL: R1 R2 R4
    Date: 2017–07–31
  3. By: Boscow Okumu; Edwin Muchapondwa
    Abstract: Forest ecosystem services are critical for human well-being as well as functioning and growth of economies. However, despite the growing demand for these services, they are hardly given due consideration in public policy formulation. The values attached to these services by local communities are also generally unknown in developing countries. Using a case study of the Mau forest conservancy the study applied a choice experiment technique employing the efficient design criteria to value salient forest ecosystem services among forest adjacent communities. The values attached to various ecosystem services were estimated using the conditional logit, random parameter logit model and random parameter logit model with interactions. The results revealed high level of preference heterogeneity across households and that communities would prefer conservation programs that would guarantee them improved forest cover, reduced flood risk and high water quality and quantity for drinking but would experience a loss in welfare for choosing an alternative with medium wildlife population. One significant finding from the study is the altruistic nature of forest adjacent communities as revealed by the high willingness to pay for flood mitigation showing that they are not just concerned with the private benefits accruing to them but also the welfare of the society. Overall, we found that there is much appreciation for the role of forest ecosystem services and that forest adjacent communities are more pro conservation mainly motivated by the direct use and non-use values. In terms of policy, the information forms a basis for the design of market based incentives such as PES and the roll out, design and implementation of participatory forest management. Policy makers also need to focus on policy options with higher mean welfare impacts to deepen community involvement in forest conservation while taking into account the heterogeneity in preferences to ensure equity.
    Keywords: choice experiment, ecosystem services, Incentives, PES
    JEL: Q23 Q28 Q51 Q57
    Date: 2017–07

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