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Heterogeneity in Environmental Demand

Daniel Phaneuf

Annual Review of Resource Economics, 2013, vol. 5, issue 1, 227-244

Abstract: Heterogeneity is a defining characteristic of environmental demand studies that use household-level data. People make different choices due to observed and unobserved differences in preferences and constraints, choice elements are quality-differentiated commodities that can be consumed in different ways, and observed characteristics of people are often import for policy. In this review I examine how environmental economists have responded to the challenges and opportunities this heterogeneity implies. I categorize the types of heterogeneity that can be present, provide examples of each, and propose criteria to use in deciding when explicit attention should be paid to the different types. I then show how a variety of economic and econometric models have been used to accommodate the various dimensions of observed and unobserved heterogeneity, and I discuss opportunities for further research on the topic.

Keywords: sorting models; corner solution models; choice experiments; discrete choice; mixed logit; latent class models; alternative-specific constants; household-level data (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:anr:reseco:v:5:y:2013:p:227-244