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Bounding WTP distributions to reflect the ‘actual’ consideration set

Danny Campbell (), David Hensher () and Riccardo Scarpa ()

Journal of choice modelling, 2014, vol. 11, issue C, 4-15

Abstract: In this paper we extend the independent availability logit and combined latent class mixed logit models to accommodate respondents with different consideration sets due to their cost thresholds and cut-offs. Pertinent features of our model are that it is estimated in WTP-space and that the class-specific WTP distributions are truncated to be within the bounds deduced from the cost level(s) within each class-specific consideration set. Our analysis shows that our approach is well suited at uncovering the heterogeneity in the cost thresholds and cut-offs used by respondents. This is shown to help build a richer insight into respondent׳s behaviour as well as raise a number of concerns about the appropriateness of assuming deterministic choice sets. We discuss the implications of our results for welfare analysis.

Keywords: Independent availability logit model; Combined latent class mixed logit model; Willingness to pay; Consideration set; Cost threshold; Elimination-by-aspects (search for similar items in EconPapers)
Date: 2014
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