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Transition choice probabilities and welfare analysis in random utility models

  • André de Palma

    ()

    (Member of the Institut Universitaire de France THEMA, Université de Cergy-Pontoise and ENPC, Paris)

  • Karim Kilani

    ()

    (GREG, Conservatoire National des Arts et M´etiers 2 rue Cont´e, 75003, Paris, France)

We study the descriptive and the normative consequences of attribute changes in standard discrete choice models. For additive random utility models, we derive expressions for the transition choice probabilities for a change in the systematic utility. We then use these expressions to compute the CDF’s of the compensating variation conditional on the initial and on the final choices. The conditional moments of the compensating variation are obtained as a one-dimensional integral of the transition choice probabilities. We also provide a stochastic version of Shephard’s Lemma when transitions are observed. Example of the logit and the disaggregated CES are also studied.

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File URL: http://www.u-cergy.fr/thema/repec/2007-19.pdf
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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-19.

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Date of creation: 2007
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Handle: RePEc:ema:worpap:2007-19
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