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Discrete Choice Models in Preference Space and Willingness-to Pay Space

  • Train, K.
  • Weeks, M.

In models with unobserved taste heterogeneity, distributional assumptions can be placed in two ways: (1) by specifying the distribution of coefficients in the utility function and deriving the distribution of willingness to pay (wtp), or (2) by specifying the distribution of wtp and deriving the distribution of coefficients. In general the two approaches are equivalent, in that any mutually compatible distributions for coefficients and wtp can be represented in either way. However, in practice, convenient distributions, such as normal or lognormal, are usually specified, and these convenient distributions have different implications when placed on wtp's than on coefficients. We compare models that use normal and lognormal distributions for coefficients (models in preference space) with models using these distributions for wtp (models in wtp space). We find that the models in preference space fit the data better but provide less reasonable distributions of wtp than the models in wtp space.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0443.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0443.

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Length: 23
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:cam:camdae:0443
Note: EM
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
  2. Cameron, Trudy Ann & James, Michelle D, 1987. "Efficient Estimation Methods for "Closed-ended' Contingent Valuation Surveys," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 269-76, May.
  3. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2.
  4. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  5. David Hensher & Nina Shore & Kenneth Train, 2005. "Households’ Willingness to Pay for Water Service Attributes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(4), pages 509-531, December.
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