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Accounting for heterogeneity in the variance of unobserved effects in mixed logit models

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  • Greene, William H.
  • Hensher, David A.
  • Rose, John

Abstract

The growing popularity of mixed logit to obtain estimates of willingness to pay (WTP) has focussed on the distribution of the random parameters and the possibility of estimating deep parameters to account for heterogeneity around the mean of the distribution. However the possibility exists to add further behavioural information associated with the variance of the random parameter distribution, through parameterisation of its heterogeneity (or heteroskedasticity). In this paper we extend the mixed logit model to account for this heterogeneity and illustrate the implications this has on the moments of the willingness to pay for travel time savings in the context of commuter choice of mode. The empirical study highlights the statistical and behavioural gains but warns of the potential downside of exposing the distribution of the parameterised numerator and/or denominator of the more complex WTP function to a sign change and extreme values over the range of the distribution.

Suggested Citation

  • Greene, William H. & Hensher, David A. & Rose, John, 2006. "Accounting for heterogeneity in the variance of unobserved effects in mixed logit models," Transportation Research Part B: Methodological, Elsevier, vol. 40(1), pages 75-92, January.
  • Handle: RePEc:eee:transb:v:40:y:2006:i:1:p:75-92
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    References listed on IDEAS

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    1. David Revelt and Kenneth Train., 2000. "Customer-Specific Taste Parameters and Mixed Logit: Households' Choice of Electricity Supplier," Economics Working Papers E00-274, University of California at Berkeley.
    2. Bhat, Chandra R., 1998. "Accommodating variations in responsiveness to level-of-service measures in travel mode choice modeling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 32(7), pages 495-507, September.
    3. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, May.
    4. Bhat, Chandra & Zhao, Huimin, 2002. "The spatial analysis of activity stop generation," Transportation Research Part B: Methodological, Elsevier, vol. 36(6), pages 557-575, July.
    5. 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.
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