(Un)conditional distribution of compensating variation in discrete choice models

André de Palma () and Karim KILANI

No 2003100, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: For a large class of additive random utility discrete choice models with income effects, we compute the probability distribution of the compensating variation. We show that the cumulative distribution function only depends on the choice probabilities. Our results are used to compute the distribution of equivalent variation. The moments of the compensating variation are a onedimensional integral of the choice probabilities. Using the expected compensating variation, we extend Shephard's Lemma to the probabilistic demand systems. Both conditional and unconditional (on the individual choice) distributions of compensating variation are considered.

Keywords: discrete choice models; income effect; compensating variation; equivalent variation (search for similar items in EconPapers)
JEL-codes: D11 D60 (search for similar items in EconPapers)
Date: 2003-12-01
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