IDEAS home Printed from
   My bibliography  Save this paper

The Impact Of The Before-After Error Term Correlation On Welfare Measurement In Logit


  • Paolo Delle Site

    (La Sapienza University)

  • Marco Valerio Salucci

    (La Sapienza University)


We consider random utility models with independent and identical type I extreme value distribution of the error terms. To compute the expectation of the compensating variation it is necessary to consider the correlation of the error terms between the state before the price and quality change and the state after. We investigate the impact of the before-after correlation of the error terms on the expectation of the compensating variation. We consider each error term to be correlated between the before state and the after state independently and identically across alternatives. We prove the theoretical property that in the case without income effect the logsum formula holds for any assumption on the before-after correlation. We use numerical evidence to show that in the case with income effect the variability of the expectation of the compensating variation with the assumption on the before-after correlation increases with the size of the income effect.

Suggested Citation

  • Paolo Delle Site & Marco Valerio Salucci, 2012. "The Impact Of The Before-After Error Term Correlation On Welfare Measurement In Logit," Working Papers 0412, CREI Università degli Studi Roma Tre, revised 2012.
  • Handle: RePEc:rcr:wpaper:04_12

    Download full text from publisher

    File URL:
    File Function: First version, 2012
    Download Restriction: no

    References listed on IDEAS

    1. André Palma & Karim Kilani, 2011. "Transition choice probabilities and welfare analysis in additive random utility models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(3), pages 427-454, April.
    2. Jara-Díaz, Sergio R. & Videla, Jorge, 1989. "Detection of income effect in mode choice: Theory and application," Transportation Research Part B: Methodological, Elsevier, vol. 23(6), pages 393-400, December.
    3. Laurie Garrow & Tudor Bodea & Misuk Lee, 2010. "Generation of synthetic datasets for discrete choice analysis," Transportation, Springer, vol. 37(2), pages 183-202, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Anders Karlström, 2014. "Appraisal," Chapters,in: Handbook of Choice Modelling, chapter 24, pages 601-626 Edward Elgar Publishing.

    More about this item


    logit; compensating variation; before-after correlation; income effect;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D60 - Microeconomics - - Welfare Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rcr:wpaper:04_12. 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: (Francesca Vaino). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.