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A Simple Method of Incorporating Income Effects into Logit and Nested-Logit Models: Theory and Application

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  • Anders Karlstrom
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    Abstract

    Substantive income effects are incorporated in a logit or nested-logit model by assuming that utility is a piece-wise linear spline function of residual income. Specific income data are not required, only income by category. Expected compensating variation is easily and accurately approximated by the difference between expected maximum utility in the proposed and initial state, multiplied by the inverse of the individual's initial marginal utility of money. This approximation is almost exact because although any policy can, in theory, cause an individual to jump income categories, for most policies this probability will be very small. Copyright 2003, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1111/1467-8276.00116
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    Bibliographic Info

    Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

    Volume (Year): 85 (2003)
    Issue (Month): 1 ()
    Pages: 248-253

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    Handle: RePEc:oup:ajagec:v:85:y:2003:i:1:p:248-253

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    Cited by:
    1. Mitsunobu Miyake, 2010. "Convergence theorems of willingness-to-pay and willingness-to-accept for nonmarket goods," Social Choice and Welfare, Springer, vol. 34(4), pages 549-570, April.
    2. Ricardo Scarpa & Mara Thiene & Francesco Marangon, 2007. "The Value of Collective Reputation for Environmentally Friendly Production Methods: The Case of Val di Gresta," Working Papers in Economics 07/11, University of Waikato, Department of Economics.
    3. Westerberg, Vanja Holmquist & Lifran, Robert & Olsen, Søren Bøye, 2010. "To restore or not? A valuation of social and ecological functions of the Marais des Baux wetland in Southern France," Ecological Economics, Elsevier, vol. 69(12), pages 2383-2393, October.
    4. Aaron Golub & Ronaldo Balassiano & Ayres Araújo & Eric Ferreira, 2009. "Regulation of the informal transport sector in Rio de Janeiro, Brazil: welfare impacts and policy analysis," Transportation, Springer, vol. 36(5), pages 601-616, September.
    5. Donna Dosman & Wiktor Adamowicz, 2006. "Combining Stated and Revealed Preference Data to Construct an Empirical Examination of Intrahousehold Bargaining," Review of Economics of the Household, Springer, vol. 4(1), pages 15-34, 03.
    6. Termansen, Mette & Zandersen, Marianne & McClean, Colin J., 2008. "Spatial substitution patterns in forest recreation," Regional Science and Urban Economics, Elsevier, vol. 38(1), pages 81-97, January.
    7. Phaneuf, Daniel J. & Smith, V. Kerry, 2006. "Recreation Demand Models," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 15, pages 671-761 Elsevier.
    8. J.M.C. Santos Silva, 2004. "Deriving welfare measures in discrete choice experiments: a comment to Lancsar and Savage (2)," Health Economics, John Wiley & Sons, Ltd., vol. 13(9), pages 913-918.
    9. Yang, Jui-Chen & Pattanayak, Subhrendu K. & Jonson, F. Reed & Mansfield, Carol & van den Berg, Caroline & Jones, Kelly, 2006. "Unpackaging demand for water service quality : evidence from conjoint surveys in Sri Lanka," Policy Research Working Paper Series 3817, The World Bank.
    10. Scarpa, Riccardo & Thiene, Mara & Marangon, Francesco, 2006. "Consumer's WTP for Environment-Friendly Production Methods and Collective Reputation for Place of Origin: The Case of Val di Gresta's Carrots," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25637, International Association of Agricultural Economists.
    11. Edward Morey & Kathleen Greer Rossmann, 2003. "Using Stated-Preference Questions to Investigate Variations in Willingness to Pay for Preserving Marble Monuments: Classic Heterogeneity, Random Parameters, and Mixture Models," Journal of Cultural Economics, Springer, vol. 27(3), pages 215-229, November.

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