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on Discrete Choice Models |
| By: | Helmut Elsinger; Helmut Stix; Martin Summer |
| Abstract: | This paper examines consumers' intended adoption of a digital euro in Austria using a discrete choice experiment. We estimate a mixed logit model to quantify the role of key attributes such as privacy, offline functionality, security against financial loss, monetary incentives, and payment form factors. Our findings indicate that security and financial incentives are the strongest drivers of adoption, while respondents do not report strong preferences among the privacy options that are laid out in the experiment. We identify significant heterogeneity in adoption likelihood across socio-demographic groups. Simulations suggest that under realistic design assumptions, approximately 45% of individuals are found to have an intention to adopt a digital euro. |
| Keywords: | central bank digital currency (CBDC), consumer adoption, discrete choice experiment, payment preferences |
| JEL: | E42 D12 G21 C35 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1302 |
| By: | Mzek, Tareq; Piras, Simone; Dinnie, Liz |
| Abstract: | Vertical farming (VF) offers a potential solution to enhance food security, support rural econ-omies, and advance sustainable agriculture by minimising water usage, reducing the need for land, and increasing crop yields. However, its adoption potential depends on consumer ac-ceptance and demand. This study explores consumer preferences and willingness to pay (WTP) for vertical farming produce through a choice experiment focused on bowls of ready-to-eat salad leaves. We focus on the case study of Scotland, a country whose pedoclimatic conditions limit on-field production of fresh vegetables. An online survey was conducted with a sample of 800 Scottish consumers stratified by age and gender. Participants were assigned to one of four treatment groups. Each group received different information about VF, emphasising re-spectively environmental benefits, localness and local development, or energy concerns, in ad-dition to a baseline with no additional information. We find very limited prior knowledge of VF, increasing the salience of our treatments. We detect no significant difference in preferences between VF and on-field production per se, neither in the baseline, nor under the different treatments, but relative preference for products providing this information. Taste consistency, freshness (residual shelf life), and local origin, all enhanced by VF production, were important drivers of consumers’ choices. In the absence of vegetables grown on-field in the UK, national VF products were still preferred to imported ones. These findings can inform policymakers, producers, and retailers about strategies to enhance consumer acceptance and market potential for VF production. |
| Keywords: | Agricultural and Food Policy, Farm Management |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356799 |
| By: | John C. Whitehead; Tim Haas; Lynne Lewis; Leslie Richardson; Pete Schuhmann |
| Abstract: | The single binary choice (SBC) question format, commonly used in contingent valuation studies and modeled as a hypothetical referendum, is considered incentive compatible when paired with a coercive payment vehicle and a consequential survey. Despite its dominance in the field, the SBC format yields limited information, which can result in imprecise and unreliable estimates of willingness to pay (WTP). This chapter explores the limitations of SBC using a meta-analysis dataset originally compiled by Lewis, Richardson, and Whitehead (2024) for nonparametric WTP estimation. We extend their work by analyzing parametric WTP estimates and comparing them with nonparametric Turnbull and adjusted Kristršm estimates. Our results show that parametric WTP can differ significantly from the Turnbull nonparametric estimate, and that confidence intervals derived from parametric models are often wider than those from non-paramteric WTP estimates. In a meta-regression, we find that the inefficiency of SBC decreases with data quality. We illustrate the importance of these issues with a replication of directional split-sample tests from the meta-data. Compared to parametric WTP estimates, tests using Turnbull and adjusted Kristršm estimates are more likely to detect statistically significant differences in WTP, underscoring the importance of robustness tests with alternative WTP estimates. Key Words: |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:apl:wpaper:25-11 |
| By: | Thomas G. Poder; Hosein Ameri |
| Abstract: | In this report, we empirically compare seven elicitation techniques for evaluating the utilities associated with health states described by the Short-Form 6-Dimension version 2 (SF-6Dv2), where the standard gamble (SG) is considered the reference approach. This allows us to estimate a SF-6Dv2 value set of health utilities for use in Quebec and to introduce a new approach based on multiple bounded discrete choice (MBDC). Various econometric estimation techniques were used, and all analyses were performed on data collected from French-speaking individuals aged 18 and over residing in Quebec, Canada, in 2016 and 2018. The discrete choice experiment (DCE) approach combined with best-worst scaling (DCEBWS) appears to be a coherent and comparable alternative to the SG. Our analyses also show that the MBDC approach is feasible and allows for the generation of utility data representative of respondents' preferences. The reference SF-6Dv2 value set selected for Quebec is derived from DCEBWS and ranges from -0.683 for the worst health condition (555655) to 1 for perfect health (111111). The pain dimension shows the largest decreases in coefficients in terms of magnitude, indicating its significant influence in establishing the utility values for health conditions in Quebec. Dans ce rapport, nous comparons empiriquement sept techniques d’élicitation pour évaluer les utilités associées aux états de santé décrits par le Short-Form 6-Dimension version 2 (SF-6Dv2) et où le pari ordinaire (standard gamble – SG) est considérée comme l’approche de référence. Ce faisant, cela nous permet d’estimer un ensemble de valeurs d’utilité pour le SF-6Dv2 à utiliser au Québec et d’introduire une nouvelle approche basée sur le choix dichotomique multiple borné (multiple bounded discrete choice, MBDC). Diverses techniques d’estimation économétrique ont été utilisés et toutes les analyses ont été réalisées à partir de données recueillies auprès de personnes francophones âgées de 18 ans et plus résidant au Québec, Canada, en 2016 et 2018. L’approche du choix expérimental discret (discrete choice experiment – DCE) combinée avec un best-worst scaling (DCEBWS) apparaît comme étant une alternative cohérente et comparable au SG. Il ressort également de nos analyses que l’’approche MBDC est réalisable et permet de générer des données d’utilité représentatives des préférences des répondants. L’ensemble de référence de valeurs d’utilité du SF-6Dv2 retenu pour le Québec est issu du DCEBWS et varie de -0, 683 pour le pire état de santé (555655) à 1 pour une santé parfaite (111111). La dimension de la douleur présente ici les plus fortes diminutions de coefficients en termes d’ampleur, ce qui indique sa grande influence dans l’établissement des valeurs d’utilité des états de santé. |
| Keywords: | Quality-adjusted life year, standard gamble, discrete choice experiment, multiple bounded discrete choice, health utility, Année de vie ajustée par la qualité, pari ordinaire, choix expérimental discret, choix dichotomique multiple borné, utilité en santé |
| Date: | 2025–11–11 |
| URL: | https://d.repec.org/n?u=RePEc:cir:cirpro:2025rp-26 |
| By: | Kaushil Patel |
| Abstract: | To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have different thresholds. Similar models of bounded rationality have been studied in the empirical marketing literature. We fully characterize the model, and using observational choice data alone, we identify the welfare implications of a price change. The behavioral content of our model overlaps with an important class of random utility models, but the welfare implications are meaningfully different. The distribution of equivalent variation under our model first-order stochastically dominates that under the random utility model. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03813 |
| By: | L Kaili Diamond; Benjamin Gilbert |
| Abstract: | We develop a hybrid approach to estimate spatial coordination mechanisms in structural dynamic discrete choice models by combining nested fixed-point (NFXP) dynamic programming with method of simulated moments (MSM), achieving computational tractability in spatial settings while preserving structural interpretation. Applying this framework to GPU replacement data from 12, 915 equipment locations in Oak Ridge National Laboratory's Titan supercomputer, we identify two distinct coordination mechanisms: sequential replacement cascades (gamma_lag = -0.793) and contemporaneous failure batching (gamma_fail = -0.265). Sequential coordination dominates - approximately three times stronger than failure batching - indicating that operators engage in deliberate strategic behavior rather than purely reactive responses. Spatial interdependencies account for 5.3% of variation unexplained by independent-decision models, with coordination concentrated in high-risk thermal environments exhibiting effects more than 10 times stronger than cool zones. Formal tests decisively reject spatial independence (chi-squared(2) = 685.38, p |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03091 |
| By: | König, Pascal; Weißmüller, Kristina Sabrina (Vrije Universiteit Amsterdam) |
| Abstract: | What factors lie behind bureaucrats’ readiness to delegate client interactions that commonly involve human empathy to artificial intelligence (AI) systems? Such delegation entails a crucial trade-off as it may reduce workload but simultaneously introduces inauthentic empathic engagement in citizen-state relations, which may undermine the moral integrity of public administration (PA). Drawing on bureaucratic legitimacy theory, this study tests the impact of efficiency gains, AI features, and organizational norms on civil servants’ willingness to delegate citizen engagement to AI. Findings from a pre-registered discrete choice experiment conducted with 300 active German civil servants (Obs.=3, 000) show that while efficiency gains and norms do have some impact, utilitarian considerations concerning AI’s ability to serve clients well are clearly the most important motivator. The findings show that the acceptability of delegating empathic engagement with citizens to AI can be tied to key dimensions of bureaucratic legitimacy, and provide novel evidence that the delegation of counselling to AI in PA is more strongly linked with public service motivation rather than self-serving efficiency gains. These insights advance theory and inform responsible and client-centered use of AI in public bureaucracies. |
| Date: | 2025–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:v9nj3_v1 |
| By: | Satoshu Nakada; Kensei Nakamura |
| Abstract: | This paper studies the axiomatic bargaining problem and proposes a new class of bargaining solutions, called coarse Nash solutions. These solutions assign to each problem a set of outcomes coarser than that chosen by the classical Nash solution (Nash, 1950). Our main result shows that these solutions can be characterized by new rationality axioms for choice correspondences, which are modifications of Nash's independence of irrelevant alternatives (or more precisely, Arrow's (1959) choice axiom), when combined with standard axioms. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.05019 |
| By: | Osuji, M.N. |
| Abstract: | The study evaluated the marketing channel efficiency and choice analysis of beef in Imo state, identify the marketing channels, assess the determinants of choice of marketing channels and identify the constraints faced by small-holder beef traders in the study area. Purposive and simple random sampling techniques were employed to select thirty-two (32) wholesalers, seventy-five (75) retailers and thirteen (13) Speculators. Descriptive statistics, Multinomial logit regression. Results showed that majority of the beef traders 98% were males, with the mean age of 43 years and mean household size of 4 persons. The result further outlines the prominent marketing channels in area to include Ranches – Slaughterhouse 72.8%, Slaughterhouse – Retailers 70.8%, Retailers – Consumers 67.8% and Slaughter – Wholesalers 58.5%. The result of multinomial results on the determinants of choice of marketing channels shows that the combine effects of age and access to market information had a positive influence on choice of marketing channels while the combine effects of level of education, household size and cost storage facilities had a negative influence on their choice of market channels. High cost of transportation, price fluctuations, bad roads and high market charges are the predominant constraints to small-holder beef traders in the study area. The Government and policy makers should implement policies that will improve market infrastructure, construct good roads, and cut down some of the unnecessary charges which pose a constraint to beef marketing in the study area. Efforts to keep agricultural prices stable all year round through price stabilization policy, traders’ co-operatives should dialog with government and market leaders to find possible ways to reduce the market charges and price fluctuations. Government should provide lasting solution to ensure the safe transportation of agricultural produces in Nigeria. |
| Keywords: | Livestock Production/Industries, Marketing |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356737 |
| By: | Tatiana Komarova; William Matcham |
| Abstract: | We analyze multivariate ordered discrete response models with a lattice structure, modeling decision makers who narrowly bracket choices across multiple dimensions. These models map latent continuous processes into discrete responses using functionally independent decision thresholds. In a semiparametric framework, we model latent processes as sums of covariate indices and unobserved errors, deriving conditions for identifying parameters, thresholds, and the joint cumulative distribution function of errors. For the parametric bivariate probit case, we separately derive identification of regression parameters and thresholds, and the correlation parameter, with the latter requiring additional covariate conditions. We outline estimation approaches for semiparametric and parametric models and present simulations illustrating the performance of estimators for lattice models. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03418 |
| By: | Lima de Miranda, Katharina; Detlefsen, Lena; Schmidt, Ulrich |
| Abstract: | Our study contributes to the literature on choice shifts in group decision-making by analyzing how the level of risk-taking within a group is influenced by its gender composition. In particular, we investigate experimentally whether group composition affects how preferences ‘shift’ when comparing individual and group choices. Consistent with hypotheses derived from previous literature, we show that male-dominated groups shift toward riskier decisions in a way that is not explained by any simple preference aggregation mechanism. We discuss potential channels for the observed pattern of choice shifts. |
| Keywords: | Experiment, gender group, decisions, risk-taking, risky shift |
| JEL: | D71 D81 D91 J16 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:330837 |
| By: | Susanne M. Schennach; Vincent Starck |
| Abstract: | We propose a new estimation methodology to address the presence of covariate measurement error by exploiting the availability of spatial data. The approach uses neighboring observations as repeated measurements, after suitably controlling for the random distance between the observations in a way that allows the use of operator diagonalization methods to establish identification. The method is applicable to general nonlinear models with potentially nonclassical errors and does not rely on a priori distributional assumptions regarding any of the variables. The method's implementation combines a sieve semiparametric maximum likelihood with a first-step kernel estimator and simulation methods. The method's effectiveness is illustrated through both controlled simulations and an application to the assessment of the effect of pre-colonial political structure on current economic development in Africa. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03306 |
| By: | Spada, Riccardo; Moritz, Laura; Rommel, Jens; Cerroni, Simone; Meuwissen, Miranda P.M.; Dalhaus, Tobias |
| Abstract: | Price volatility is a significant risk in agriculture, and risk-averse farmers might sacrifice part of their expected profits to mitigate it. Risk management tools such as forward contracts, futures, options, and price insurance, are designed to hedge price risk. Yet adoption rates are low, which contradicts standard expected utility maximizing behavior. We therefore systematically review the literature on the relationship between behavioral factors and farmers’ adoption of price risk management tools to better understand the adoption decision. We here categorize behavioral factors into behavioral preferences, formally integrated into economic choice models, and into psychological factors, which lack mathematical formalization. We use these conceptual model to define search terms and then follow the PRISMA approach to identify 100 relevant papers. Results show that the vast majority of studies incorporate risk aversion in an Expected Utility framework to conceptualize price risk management decisions. Therefore, we conclude that behavioral economic models such as Cumulative Prospect Theory, that incorporates behavioral preferences such as loss aversion and probability distortion, offer promising pathways to better explain farmers’ price risk management decisions. Regarding psychological factors, findings highlight the role of risk attitudes, social environment, and cognitive perceptions in shaping farmers’ decisions. Further research is required to identify behavioral economic preferences that explain price risk management decisions. Moreover, price risk management tools should be adjusted to better consider farmer preferences and thereby become more attractive to farmers. |
| Keywords: | Agricultural Finance, Demand and Price Analysis |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356632 |
| By: | Sébastien Levionnois (ECOSYS - Ecologie fonctionnelle et écotoxicologie des agroécosystèmes - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UMR AGAP - Amélioration génétique et adaptation des plantes méditerranéennes et tropicales - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier); Noémie Gaudio (AGIR - AGroécologie, Innovations, teRritoires - EI Purpan - Ecole d'Ingénieurs de Purpan - Comue de Toulouse - Communauté d'universités et établissements de Toulouse); Rémi Mahmoud (AGIR - AGroécologie, Innovations, teRritoires - EI Purpan - Ecole d'Ingénieurs de Purpan - Comue de Toulouse - Communauté d'universités et établissements de Toulouse); Christophe Pradal (UMR AGAP - Amélioration génétique et adaptation des plantes méditerranéennes et tropicales - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier, Cirad-BIOS - Département Systèmes Biologiques - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement, LIRMM - Laboratoire d'Informatique de Robotique et de Microélectronique de Montpellier - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier); Corinne Robert (ECOSYS - Ecologie fonctionnelle et écotoxicologie des agroécosystèmes - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Highlights: • Simulated intercropping decrease disease intensity and improve protectiveness while canopy indicators predict such effects. • Pea intercropped with wheat decreased disease intensity compared with faba bean. • Nitrogen fertilization increased disease intensity. • This study stressed the critical lack of experimental data on disease in intercropping. Abstract: Context : Intercropping is a promising strategy for integrated disease management and agroecological transition, although experimental and modelling studies are scarce. Objectives: This study aims to understand and quantify the impact of non-host species choice and nitrogen (N) fertilization on disease epidemics in the context of intercropping. Methods: We collected existing experimental data on LAI based on a literature survey of non-diseased wheat intercropped with different non-host legume species (pea and faba bean) and N fertilization treatments. Based on a foliar epidemic model for intercropping, we simulated epidemics directly on these experimental data of LAI. The model is parameterized for two wheat fungal diseases: Septoria tritici blotch, a rain-borne disease, and wheat leaf rust, an air-borne disease. Results: Our results indicate that intercropping can decrease disease intensity and improve protectiveness for both diseases. Effect depends however on species choice as pea intercropped with wheat leads to lower disease intensity and better intercropping protectiveness compared with faba bean, whereas N fertilization increased disease intensity. We also found that crop indicators describing wheat leaf area index (LAI) can predict disease intensity, whereas indicators describing companion LAI can better predict intercropping protectiveness. Conclusions: Intercropping can significantly reduce fungal epidemics on wheat, and intercropping management practices can be optimized for effective disease management in wheat-legume intercrops. The dilution effect is more related to disease intensity, while the barrier effect is more related to intercropping protectiveness. Implications: These findings pave the way for identifying field indicators to predict epidemics. However, this study also stressed the critical lack of experimental data on disease in intercropping. |
| Keywords: | Septoria tritici blotch, Wheat leaf rust, Intercropping, Crop mixture |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05328274 |
| By: | Moshe Hazan (Department of Economics, Monash University, 900 Dandenong Road, Caulfield East VIC 3145); Shay Tsur (Research Department, Bank of Israel, P.O. Box 780, Jerusalem 9100701) |
| Abstract: | We study how shifting intra-household control over resources affects fertility, exploiting a quasi-natural experiment in Israel where some Holocaust survivors began receiving substantial and unexpected reparations in 1957 and others decades later. Using a triple-difference design with heterogeneity by age, we compare fertility outcomes by timing of reparations, gender of the recipient, and age. Households where only the young female partner received reparations early had 0.25–0.4 fewer children than comparable households where only the male was treated. An event study shows that this effect is driven entirely by post-1957 fertility, suggesting a causal link to increased female resource control |
| Keywords: | Fertility Choice, Intrahouseho |
| JEL: | J13 J16 D13 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:mos:moswps:2025-16 |
| By: | Henrique de Oliveira; Jeffrey Mensch |
| Abstract: | We consider an agent with a rationally inattentive preference over menus of acts, as in de Oliveira et al (2017). We show that two axioms, Independence of Irrelevant Alternatives and Ignorance Equivalence, are necessary and sufficient for this agent to have a posterior-separable cost satisfying a mild smoothness condition, called joint-directional differentiability. Viewing the decision-maker's problem as a Bayesian persuasion problem, we also show that these axioms are necessary and sufficient for solvability by a unique hyperplane. When the cost function remains invariant for different priors, we show that these axioms imply uniformly posterior separable costs that are differentiable. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.09424 |
| By: | Eiji Kurozumi; Anton Skrobotov |
| Abstract: | We propose constructing confidence sets for the emergence, collapse, and recovery dates of a bubble by inverting tests for the location of the break date. We examine both likelihood ratio-type tests and the Elliott-Muller-type (2007) tests for detecting break locations. The limiting distributions of these tests are derived under the null hypothesis, and their asymptotic consistency under the alternative is established. Finite-sample properties are evaluated through Monte Carlo simulations. The results indicate that combining different types of tests effectively controls the empirical coverage rate while maintaining a reasonably small length of the confidence set. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.16172 |
| By: | Jonathan Wood; Anupam Nanda; Sotirios Thanos |
| Abstract: | We develop a novel dynamic longitudinal Poisson model that can handle complex temporal shifts and identify the effects of ethno-demographic, socio-economic and connectivity/accessibility attributes in location patterns of bars and restaurants.Two key gaps are observed in the extant literature -not accounting sufficiently for any complex temporal patterns and for the urban or rural area characteristics. We fill these gaps by using a unique dataset of two carefully selected UK city-regions - 626 small areas in Greater Manchester and 658 small areas in Nottingham over a 17-year period (2002-2019). These study areas offer varying scales of urbanity and rurality that play fundamental role in location choice decisions. The results highlight complex temporal patterns as reflected by the non-linearities in time fixed-effects and show contrasting increases in restaurants (39.80% and 36.08% increases in Manchester and Nottingham) compared to reductions in bars (22.69% and 23.13% reductions in Manchester and Nottingham). We only find bars to be positively affected by increased retail activity (by 0.34% in Manchester and 0.49% in Nottingham). While broad ethnic categories, such as Black and Asian, show effects in our models, the recognition of ethnic sub-groups substantially changes the results and offer more nuanced understanding. |
| Keywords: | Dynamic longitudinal Poisson regression; On-premises alcohol outlet; Socioeconomic deprivation |
| JEL: | R3 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:arz:wpaper:eres2025_89 |
| By: | Campanale Claudio (Department of Economics, Social Studies, Applied Mathematics and Statistics, and Collegio Carlo Alberto, University of Turin; CeRP) |
| Abstract: | In the present research I examine the implications of heterogeneous beliefs about the expected equity premium in a life-cycle portfolio choice model with background income risk. While subjective and dispersed expectations have become a popular mechanism to explain asset pricing phenomena, introducing belief heterogeneity in a standard framework generates an additional puzzle: the sensitivity of risky asset holdings to expected returns is far greater than observed in the data. Incorporating a direct utility component over the safe asset mitigates this excess sensitivity, producing asset allocation responses that are consistent with empirical evidence. The extended model also replicates realistic patterns of stock market participation and conditional risky shares across wealth and age profiles. |
| Keywords: | Portfolio choice, Preference for Safety, Life-cycle, Heterogeneous Beliefs |
| JEL: | E21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:100 |
| By: | Anais Galdin; Jesse Silbert |
| Abstract: | Large language models (LLMs) like ChatGPT have significantly lowered the cost of producing written content. This paper studies how LLMs, through lowering writing costs, disrupt markets that traditionally relied on writing as a costly signal of quality (e.g., job applications, college essays). Using data from Freelancer.com, a major digital labor platform, we explore the effects of LLMs' disruption of labor market signaling on equilibrium market outcomes. We develop a novel LLM-based measure to quantify the extent to which an application is tailored to a given job posting. Taking the measure to the data, we find that employers have a high willingness to pay for workers with more customized applications in the period before LLMs are introduced, but not after. To isolate and quantify the effect of LLMs' disruption of signaling on equilibrium outcomes, we develop and estimate a structural model of labor market signaling, in which workers invest costly effort to produce noisy signals that predict their ability in equilibrium. We use the estimated model to simulate a counterfactual equilibrium in which LLMs render written applications useless in signaling workers' ability. Without costly signaling, employers are less able to identify high-ability workers, causing the market to become significantly less meritocratic: compared to the pre-LLM equilibrium, workers in the top quintile of the ability distribution are hired 19% less often, workers in the bottom quintile are hired 14% more often. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.08785 |