nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2018‒01‒08
six papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Logit, CES, and Rational Inattention By Andrei Matveenko
  2. Improving Drinking Quality in South Korea: A Choice Experiment By Adelina Gshwandtner; Cheul Jang; Richard McManus
  3. Endogenous Variables in Binary Choice Models: Some Insights for Practitioners By Bontemps, Christophe; Nauges, Céline
  4. Heterogeneity in household preferences for energy-efficient heating systems By Paul Thorsnes
  5. Variational Bayes Estimation of Time Series Copulas for Multivariate Ordinal and Mixed Data By Ruben Loaiza-Maya; Michael Stanley Smith
  6. Shopping for Schools: Mapping Choice Architecture in the Education Marketplace By Steven Glazerman

  1. By: Andrei Matveenko
    Abstract: We study fundamental links between two popular approaches to consumer choice: the multinomial logit model of individual discrete choice and the CES utility function, which describes a multiple choice of a representative consumer. We base our analysis on the rational inattention (RI) model and show that the demand system of RI agents, each of which chooses a single option, coincides with the demand system of a fictitious representative agent with CES utility function. Thus, the multiple choice of the representative agent may be explained by the heterogeneity in signals received by the RI agents. We obtain a new interpretation for the elasticity of substitution and the weighting coeficients of the CES utility function. Specifically, we provide a correspondence between parameters of the CES utility function, prior knowledge and marginal cost of information.
    Keywords: discrete choice; rational inattention; CES utility function; multinomial logit; representative consumer; demand system;
    JEL: D40 D83 L11
    Date: 2017–06
  2. By: Adelina Gshwandtner; Cheul Jang; Richard McManus
    Abstract: Increased pollution leads to a constant decrease of drinking water quality worldwide. Due to safety concerns, unpleasant taste and odour only about 3% of the population in South Korea is drinking untreated tap water. The present study uses choice experiments and cost-benefit analysis to investigate the feasibility of installing advanced water treatments in Cheongju waterworks in South Korea. The waterworks is situated in the middle of the country and is providing more than half a million people with drinking water. The study shows that the lower bound of the median WTP for installing a new advanced water treatment system is about $2 US/month, which is similar to the average expenditures for bottled water per household in South Korea. Scenarios under which the instalment of the advanced water treatments is feasible are discussed together with environmental solutions in the long-run.
    Keywords: Drinking Water Quality, Water Pollution, Choice Experiments, Willingness to Pay, Random Parameter and Latent Class Logit, Cost-Benefit Analysis
    JEL: C19 C83 C90 D12 D61 Q25 Q51 Q53
    Date: 2017–12
  3. By: Bontemps, Christophe; Nauges, Céline
    Abstract: The main purpose of this article is to offer practical insights to econometricians wanting to estimate binary choice models featuring a continuous endogenous regressor. We use simulated data to investigate the performance of Lewbel’s special regressor method, an estimator that is relatively easy to implement and that relies on different identification conditions than more common control function and Maximum Likelihood estimators. Our findings confirm that the large support condition is crucial for the special regressor method to perform well and that one should be very cautious when implementing heteroscedasticity corrections and trimming since these could severely bias the final estimates.
    Date: 2017–10
  4. By: Paul Thorsnes (Department of Economics, University of Otago, New Zealand)
    Abstract: This paper reports analysis of the results of two stated-choice surveys to elicit the preferences of New Zealand homeowners for attributes of improvements in space and water heating systems. We implement the survey using web-based software especially well-suited to exploration of heterogeneity in preferences across participants; independently for each participant it provides estimates of the relative strength of preference for each attribute. Cluster analysis reveals five groups of participants with similar patterns of preferences. Interestingly, the cluster comprising people who prefer to avoid a large upfront expenditure – those targeted by current subsidy policy – is the smallest of the five clusters. The attributes of most concern to each of the other four groups suggest alternative policy interventions.
    Date: 2017–12
  5. By: Ruben Loaiza-Maya; Michael Stanley Smith
    Abstract: We propose a new variational Bayes method for estimating high-dimensional copulas with discrete, or discrete and continuous, margins. The method is based on a variational approximation to a tractable augmented posterior, and is substantially faster than previous likelihood-based approaches. We use it to estimate drawable vine copulas for univariate and multivariate Markov ordinal and mixed time series. These have dimension $rT$, where $T$ is the number of observations and $r$ is the number of series, and are difficult to estimate using previous methods. The vine pair-copulas are carefully selected to allow for heteroskedasticity, which is a common feature of ordinal time series data. When combined with flexible margins, the resulting time series models also allow for other common features of ordinal data, such as zero inflation, multiple modes and under- or over-dispersion. Using data on homicides in New South Wales, and also U.S bankruptcies, we illustrate both the flexibility of the time series copula models, and the efficacy of the variational Bayes estimator for copulas of up to 792 dimensions and 60 parameters. This far exceeds the size and complexity of copula models for discrete data that can be estimated using previous methods.
    Date: 2017–12
  6. By: Steven Glazerman
    Abstract: School shopping websites are a critical source of information for school choice. This paper analyzes 14 prominent sites, documenting key design elements that make up the “choice architecture†within which choice policies play out.
    Keywords: school choice, web design, choice architecture
    JEL: I

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