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The use of latent variable models in policy: A road fraught with peril?

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  • Campbell, Danny
  • Sandorf, Erlend Dancke

Abstract

This paper explores the potential usefulness and possible pitfalls of using integrated choice and latent variable models (hybrid choice models) on stated choice data to inform policy. Using a series of Monte-Carlo simulations, we consider how model selection depends on the strength of relationship between the latent variable and preferences and the strength of relationship between the latent variable and the indicator. Our findings show that integrated choice and latent variable models are difficult to estimate, even when the data generating process is known. Ultimately, we show that their use should be driven by the analyst’s belief about the strength of correlations between preferences, the latent variable and indicator. We discuss the implications of our results for policy.

Suggested Citation

  • Campbell, Danny & Sandorf, Erlend Dancke, 2020. "The use of latent variable models in policy: A road fraught with peril?," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 9(3), December.
    • Handle: RePEc:ags:aieabj:309256
    DOI: 10.22004/ag.econ.309256
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    References listed on IDEAS

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    1. Bahamonde-Birke, Francisco J. & Ortúzar, Juan de Dios, 2017. "Analyzing the continuity of attitudinal and perceptual indicators in hybrid choice models," Journal of choice modelling, Elsevier, vol. 25(C), pages 28-39.
    2. Ben-Akiva, Moshe & McFadden, Daniel & Train, Kenneth & Börsch-Supan, Axel, 2002. "Hybrid Choice Models: Progress and Challenges," Sonderforschungsbereich 504 Publications 02-29, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    3. Hess, Stephane & Stathopoulos, Amanda, 2013. "Linking response quality to survey engagement: A combined random scale and latent variable approach," Journal of choice modelling, Elsevier, vol. 7(C), pages 1-12.
    4. Mohammed H. Alemu & Søren B. Olsen, 2019. "Linking Consumers’ Food Choice Motives to their Preferences for Insect‐based Food Products: An Application of Integrated Choice and Latent Variable Model in an African Context," Journal of Agricultural Economics, Wiley Blackwell, vol. 70(1), pages 241-258, February.
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    Cited by:

    1. Wiktor Budziński & Mikołaj Czajkowski, 2022. "Endogeneity and Measurement Bias of the Indicator Variables in Hybrid Choice Models: A Monte Carlo Investigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(3), pages 605-629, November.

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