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Appears in Collections:Economics Working Papers
Peer Review Status: Unrefereed
Title: The implications of incorrect utility function specification for welfare measurement in choice experiments
Author(s): Torres, Cati
Hanley, Nicholas
Riera, Antoni
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Citation: Torres C, Hanley N & Riera A (2009) The implications of incorrect utility function specification for welfare measurement in choice experiments. Stirling Economics Discussion Paper, 2009-07.
Keywords: utility specification
welfare measurement
choice experiments
Monte Carlo analysis
JEL Code(s): C51: Model Construction and Estimation
D69: Welfare Economics: Other
C99: Design of Experiments: Other
C15: Statistical Simulation Methods: General
Issue Date: 1-Feb-2009
Date Deposited: 19-Feb-2009
Series/Report no.: Stirling Economics Discussion Paper, 2009-07
Abstract: Despite the vital role of utility functional form in welfare measurement, the implications of working with incorrect utility specifications have not been examined in the choice experiments (CE) literature. This paper addresses the importance of the specification of both non-monetary attributes and the marginal utility of income. Monte Carlo experiments have been conducted wherein different attribute specifications and assumptions for the Cost parameter –that is, different functional forms of utility– have been assumed to generate simulated choices on which Multi-Nomial Logit and Mixed Logit models have been estimated under correct and incorrect assumptions about the true, underlying utility function. The inferred values have been compared with the true ones directly calculated from the true utility specifications. Results show that working with simple experimental designs and continuous-linear specifications makes attribute specification irrelevant for measuring attribute marginal values regardless of the true effects the attribute has on utility.
Type: Working Paper
Affiliation: Centre de Recerca Economica
Centre de Recerca Economica

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