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Integration of choice probabilities in logit

  • Delle Site, Paolo

We find for logit with income effects a function that generates choice probabilities via Roy’s identity. We show that it possesses all the properties to qualify as an indirect utility, it has a closed-form expression for the practically interesting translog specification of the systematic utilities, it reduces in the case without income effects to the expectation of the maximum utility. We discuss the use of the findings in welfare measurement and the extension to observed heterogeneity and mixed logit.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176513001365
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 120 (2013)
Issue (Month): 1 ()
Pages: 57-60

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Handle: RePEc:eee:ecolet:v:120:y:2013:i:1:p:57-60
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Herriges, Joseph A. & Kling, Catherine L., 1999. "Nonlinear Income Effects in Random Utility Models," Staff General Research Papers 1494, Iowa State University, Department of Economics.
  2. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
  3. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
  4. Constant I. Tra, 2013. "Nonlinear income effects in random utility models: revisiting the accuracy of the representative consumer approximation," Applied Economics, Taylor & Francis Journals, vol. 45(1), pages 55-63, January.
  5. ANDERSON, S. & de PALMA, A. & THISSE, J.-F., 1986. "A representative consumer theory of the logit model," CORE Discussion Papers 1986043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. David Hensher & William Greene, 2003. "The Mixed Logit model: The state of practice," Transportation, Springer, vol. 30(2), pages 133-176, May.
  7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
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