Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/2710

Appears in Collections:Economics Working Papers
Peer Review Status: Unrefereed
Title: How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments
Authors: Torres, Cati
Hanley, Nicholas
Riera, Antoni
Contact Email: economics@stir.ac.uk
Citation: Torres C, Hanley N & Riera A (2010) How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments. Stirling Economics Discussion Paper, 2010-12.
Keywords: utility specification
attributes
welfare measurement
accuracy
efficiency
choice experiments
Monte Carlo analysis
JEL Code(s): C51
D69
C99
C15
Issue Date: Nov-2010
Series/Report no.: Stirling Economics Discussion Paper, 2010-12
Abstract: Despite the vital role of the utility function in welfare measurement, the implications of working with incorrect utility specifications have been largely neglected in the choice experiments literature. This paper addresses the importance of specification with a special emphasis on the effects of mistaken assumptions about the marginal utility of income. Monte Carlo experiments were conducted using different functional forms of utility to generate simulated choices. Multi-Nomial Logit and Mixed Logit models were then estimated on these choices under correct and incorrect assumptions about the true, underlying utility function. Estimated willingness to pay measures from these choice modelling results are then compared with the equivalent measures directly calculated from the true utility specifications. Results show that for the parameter values and functional forms considered, a continuous-quadratic or a discrete-linear attribute specification is a good option regardless of the true effects the attribute has on utility. We also find that mistaken assumptions about preferences over costs magnify attribute mis-specification effects.
Type: Working or Discussion Paper
URI: http://hdl.handle.net/1893/2710
URL: http://www.management.stir.ac.uk/research/economics/working-papers
Affiliation: Centre de Recerca Economica
Economics
Centre de Recerca Economica

Files in This Item:
File Description SizeFormat 
SEDP-2010-12-Torres-Hanley-Riera.pdf1.22 MBAdobe PDFView/Open


This item is protected by original copyright



Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

If you believe that any material held in STORRE infringes copyright, please contact library@stir.ac.uk providing details and we will remove the Work from public display in STORRE and investigate your claim.