Accounting for Spatial Heterogeneity of Preferences in Discrete Choice Models

Wiktor Budzinski and Mikolaj Czajkowski

Central European Journal of Economic Modelling and Econometrics, 2021, vol. 13, issue 1, 1-24

Abstract: There are reasons researchers may be interested in accounting for spatial heterogeneity of preferences, including avoiding model misspecification and the resulting bias, and deriving spatial maps of willingness-to-pay (WTP), which are relevant for policy-making and environmental management. We employ a Monte Carlo simulation of three econometric approaches to account for spatial preference heterogeneity in discrete choice models. The first is based on the analysis of individual-specific estimates of the mixed logit model. The second extends this model to explicitly account for spatial autocorrelation of random parameters, instead of simply conditioning individual-specific estimates on population-level distributions and individuals’ choices. The third is the geographically weighted multinomial logit model, which incorporates spatial dimensions using geographical weights to estimate location-specific choice models. We analyze the performance of these methods in recovering population-, region- and individual-level preference parameter estimates and implied WTP in the case of spatial preference heterogeneity. We find that, although ignoring spatial preference heterogeneity did not significantly bias population-level results of the simple mixed logit model, neither individual-specific estimates nor the geographically weighted multinomial logit model was able to reliably recover the true region- and individual-specific parameters. We show that the spatial mixed logit proposed in this study is promising and outline possibilities for future development.

Keywords: discrete choice experiment; discrete choice models; individual-; region- and population-level parameter estimates; spatial preference heterogeneity (search for similar items in EconPapers)
JEL-codes: C25 C31 Q51 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:13:y:2021:i:1:p:1-24

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