Transition choice probabilities and welfare analysis in random utility models

André de Palma () and Karim Kilani ()
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Karim Kilani: GREG, Conservatoire National des Arts et M´etiers 2 rue Cont´e, 75003, Paris, France

No 2007-19, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: We study the descriptive and the normative consequences of attribute changes in standard discrete choice models. For additive random utility models, we derive expressions for the transition choice probabilities for a change in the systematic utility. We then use these expressions to compute the CDF’s of the compensating variation conditional on the initial and on the final choices. The conditional moments of the compensating variation are obtained as a one-dimensional integral of the transition choice probabilities. We also provide a stochastic version of Shephard’s Lemma when transitions are observed. Example of the logit and the disaggregated CES are also studied.

Keywords: Random Utility Models; Transition Choice Probabilities; Multinomial Logit Model; CES; Conditional Compensating Variation; Shephard’s Lemma. (search for similar items in EconPapers)
JEL-codes: D11 D60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2007

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Persistent link: http://EconPapers.repec.org/RePEc:ema:worpap:2007-19

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