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Appears in Collections:Economics Working Papers
Peer Review Status: Unrefereed
Title: Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?
Author(s): Torres, Cati
Hanley, Nicholas
Colombo, Sergio
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Citation: Torres C, Hanley N & Colombo S (2011) Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?. Stirling Economics Discussion Paper, 2011-02.
Keywords: preference heterogeneity
welfare measurement,
choice experiments
Monte Carlo analysis
JEL Code(s): C51
Issue Date: Feb-2011
Series/Report no.: Stirling Economics Discussion Paper, 2011-02
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.
Type: Working or Discussion Paper
Affiliation: Centre de Recerca Economica
Andalusian Institute of Agrarian Research and Training

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