The multiple discrete-continuous extreme value (MDCEV) model: Role of utility function parameters, identification considerations, and model extensions

Chandra R. Bhat

Transportation Research Part B: Methodological, 2008, vol. 42, issue 3, 274-303

Abstract: Many consumer choice situations are characterized by the simultaneous demand for multiple alternatives that are imperfect substitutes for one another. A simple and parsimonious multiple discrete-continuous extreme value (MDCEV) econometric approach to handle such multiple discreteness was formulated by Bhat (2005) [Bhat, C.R., 2005. A multiple discrete-continuous extreme value model: formulation and application to discretionary time-use decisions. Transportation Research Part B 39(8), 679-707]. within the broader Kuhn-Tucker (KT) multiple discrete-continuous economic consumer demand model of Wales and Woodland (1983) [Wales, T.J., and Woodland, A.D., 1983. Estimation of consumer demand systems with binding non-negativity constraints. Journal of Econometrics 21(3), 263-85]. This paper examines several issues associated with the MDCEV model and other extant KT multiple discrete-continuous models. Specifically, the paper proposes a new utility function form that enables clarity in the role of each parameter in the utility specification, presents identification considerations associated with both the utility functional form as well as the stochastic nature of the utility specification, extends the MDCEV model to the case of price variation across goods and to general error covariance structures, discusses the relationship between earlier KT-based multiple discrete-continuous models, and illustrates the many technical nuances and identification considerations of the multiple discrete-continuous model structure through empirical examples. The paper also highlights the technical problems associated with the stochastic specification used in the KT-based multiple discrete-continuous models formulated in recent Environmental Economics papers.

Date: 2008
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