IDEAS home Printed from https://ideas.repec.org/p/stl/stledp/2011-02.html
   My bibliography  Save this paper

Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?

Author

Listed:
  • Colombo, Sergio
  • Hanley, Nicholas
  • Torres, Cati

Abstract

A range of empirical approaches to representing preference heterogeneity have emerged in choice modelling. Researchers have been able to explore the differences which selection of a particular approach makes to welfare measures in a particular dataset, and indeed have been able to implement a number of tests for which approach best fits a particular set of data. However, the question as to the degree of error in welfare estimation from an inappropriate choice of empirical approach has not been addressed. In this paper, we use Monte Carlo analysis to address this question. Given the high popularity of both the random parameter logit (RPL) and latent class models among choice modellers, we examine the errors in welfare estimates from using the incorrect model to account for taste preference heterogeneity. Our main finding is that using an RPL specification with log-normally distributed preferences seems the best bet.

Suggested Citation

  • Colombo, Sergio & Hanley, Nicholas & Torres, Cati, 2011. "Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?," Stirling Economics Discussion Papers 2011-02, University of Stirling, Division of Economics.
  • Handle: RePEc:stl:stledp:2011-02
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/1893/2720
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joseph A. Herriges & Catherine L. Kling, 1997. "The Performance of Nested Logit Models When Welfare Estimation Is the Goal," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 792-802.
    2. Torres, Cati & Hanley, Nick & Riera, Antoni, 2011. "How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 111-121, July.
    3. Stephen Hynes & Nick Hanley & Riccardo Scarpa, 2008. "Effects on Welfare Measures of Alternative Means of Accounting for Preference Heterogeneity in Recreational Demand Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 1011-1027.
    4. Denzil G. Fiebig & Michael P. Keane & Jordan Louviere & Nada Wasi, 2010. "The Generalized Multinomial Logit Model: Accounting for Scale and Coefficient Heterogeneity," Marketing Science, INFORMS, vol. 29(3), pages 393-421, 05-06.
    5. Greene, William H. & Hensher, David A., 2003. "A latent class model for discrete choice analysis: contrasts with mixed logit," Transportation Research Part B: Methodological, Elsevier, vol. 37(8), pages 681-698, September.
    6. Ferrini, Silvia & Scarpa, Riccardo, 2007. "Designs with a priori information for nonmarket valuation with choice experiments: A Monte Carlo study," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 342-363, May.
    7. Alberini Anna, 1995. "Efficiency vs Bias of Willingness-to-Pay Estimates: Bivariate and Interval-Data Models," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 169-180, September.
    8. Catherine L. Kling & Cynthia J. Thomson, 1996. "The Implications of Model Specification for Welfare Estimation in Nested Logit Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 103-114.
    9. Herriges, Joseph A. & Kling, Catherine L., 1997. "Performance of Nested Logit Models when Welfare Estimation Is the Goal (The)," Staff General Research Papers Archive 1480, Iowa State University, Department of Economics.
    10. Kenneth E. Train, 1998. "Recreation Demand Models with Taste Differences over People," Land Economics, University of Wisconsin Press, vol. 74(2), pages 230-239.
    11. Kling, Catherine L., 1989. "Importance of Functional Form in the Estimation of Welfare (The)," Staff General Research Papers Archive 1596, Iowa State University, Department of Economics.
    12. Provencher, Bill & Bishop, R.C.Richard C., 2004. "Does accounting for preference heterogeneity improve the forecasting of a random utility model? A case study," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 793-810, July.
    13. Johansson,Per-Olov, 1993. "Cost-Benefit Analysis of Environmental Change," Cambridge Books, Cambridge University Press, number 9780521447928, December.
    14. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304, December.
    15. Kling, Catherine L. & Herriges, Joseph A., 1997. "Model Performance of Nested Logit Models when Welfare Estimation is the Goal, The," Staff General Research Papers Archive 12331, Iowa State University, Department of Economics.
    16. Sergio Colombo & Nick Hanley & Jordan Louviere, 2009. "Modeling preference heterogeneity in stated choice data: an analysis for public goods generated by agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 307-322, May.
    17. Kling, Catherine L., 1989. "The Importance Of Functional Form In The Estimation Of Welfare," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
    18. Kling, Catherine L., 1997. "Evaluation of the Gains from Combining Travel Cost and Contingent Valuation Data to Value Nonmarket Goods (An)," Staff General Research Papers Archive 1598, Iowa State University, Department of Economics.
    19. William Greene & David Hensher, 2010. "Does scale heterogeneity across individuals matter? An empirical assessment of alternative logit models," Transportation, Springer, pages 413-428.
    20. Kling, Catherine L., 1988. "Reliability of Estimates of Environmental Benefits from Recreation Demand Models (The)," Staff General Research Papers Archive 1587, Iowa State University, Department of Economics.
    21. Kling, Catherine L. & Thomson, Cynthia J., 1996. "Implications of Model Specification for Welfare Estimation in Nested Logit Models (The)," Staff General Research Papers Archive 1599, Iowa State University, Department of Economics.
    22. Jayson L. Lusk & F. Bailey Norwood, 2005. "Effect of Experimental Design on Choice-Based Conjoint Valuation Estimates," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 771-785.
    23. Fredrik Carlsson & Peter Martinsson, 2003. "Design techniques for stated preference methods in health economics," Health Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 281-294.
    24. Kling, Catherine L., 1987. "Simulation Approach to Comparing Multiple Site Recreation Demand Models Using Chesapeake Bay Survey Data (A)," Staff General Research Papers Archive 1583, Iowa State University, Department of Economics.
    25. Peter Boxall & Wiktor Adamowicz, 2002. "Understanding Heterogeneous Preferences in Random Utility Models: A Latent Class Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 421-446.
    26. Riccardo Scarpa & Ian Bateman, 2000. "Efficiency Gains Afforded by Improved Bid Design versus Follow-up Valuation Questions in Discrete-Choice CV Studies," Land Economics, University of Wisconsin Press, vol. 76(2), pages 299-311.
    27. Birol, Ekin & Karousakis, Katia & Koundouri, Phoebe, 2006. "Using a choice experiment to account for preference heterogeneity in wetland attributes: The case of Cheimaditida wetland in Greece," Ecological Economics, Elsevier, vol. 60(1), pages 145-156, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Wiktor Budziński, 2015. "The effects of non-constant marginal utility of cost for public goods valuation," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 43.

    More about this item

    Keywords

    Monte Carlo analysis; choice experiments; efficiency; accuracy; welfare measurement; preference heterogeneity;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:stl:stledp:2011-02. 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: (Liam Delaney). General contact details of provider: http://edirc.repec.org/data/destiuk.html .

    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.