Transition choice probabilities and welfare in ARUM's
We study the descriptive and the normative consequences of price and/or other attributes changes in additive random utility models. We first derive expressions for the transition choice probabilities associated to these changes. A closed-form formula is obtained for the logit. We then use these expressions to compute the cumulative distribution functions of the compensating variation conditional on ex-ante and/or ex-post choices. The unconditional distribution is also provided. The conditional moments of the compensating variation are obtained as a one-dimensional integral of the transition choice probabilities. This framework allows us to derive a stochastic version of Shephard's lemma, which relates the expected conditional compensating variation and the transition choice probabilities. We compute the compensating variation for a simple binary linear in income choice model and show that the information on the transitions leads to better estimates of the compensating variation than those obtained when only ex-ante or ex-post information on individual choices is observed. For the additive in income logit, we compute the conditional distribution of compensating variation, which generalizes the logsum formula. Finally, we derive a new welfare formula for the disaggregated version of the represen- tative consumer CES model.
|Date of creation:||16 Sep 2009|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00417493/en/|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anderson, Simon P. & De Palma, Andre & Thisse, Jacques-Francois, 1987.
"The CES is a discrete choice model?,"
Elsevier, vol. 24(2), pages 139-140.
- Daniel McFadden, 2005. "Revealed stochastic preference: a synthesis," Economic Theory, Springer, vol. 26(2), pages 245-264, 08.
- A.de Palma & K. Kilani, 2003.
"Invariance of Conditional Maximum Utility,"
THEMA Working Papers
2003-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- von Haefen, Roger H., 2003.
"Incorporating observed choice into the construction of welfare measures from random utility models,"
Journal of Environmental Economics and Management,
Elsevier, vol. 45(2), pages 145-165, March.
- von Haefen, Roger H., 2000. "Incorporating Observed Choice In The Construction Of Welfare Measures From Random Utility Models," 2000 Annual meeting, July 30-August 2, Tampa, FL 21836, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- John K. Dagsvik & Anders Karlstr�m, 2005. "Compensating Variation and Hicksian Choice Probabilities in Random Utility Models that are Nonlinear in Income," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 57-76.
- de Palma, Andre & Kilani, Karim, 2005. "Switching in the logit," Economics Letters, Elsevier, vol. 88(2), pages 196-202, August.
- de Jong, Gerard & Daly, Andrew & Pieters, Marits & van der Hoorn, Toon, 2007. "The logsum as an evaluation measure: Review of the literature and new results," Transportation Research Part A: Policy and Practice, Elsevier, vol. 41(9), pages 874-889, November.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00417493. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.