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Functional Forms in Discrete/Continuous Choice Models with General Corner Solution

Felipe Vásquez Lavín and Michael Hanemann ()

No 08-2009, Working Papers from Departamento de Economía, Universidad de Concepción

Abstract: In this paper we present a new utility model that serves as the basis for modeling discrete/continuous consumer choices with a general corner solution.The new model involves a more flexible representation of preferences than what has been used in the previous literature and, unlike most of this literature, it is not additively separable. This functional form can handle richer substitution patterns such as complementarity as well as substitution among goods. We focus in part on the Quadratic Box-Cox utility function and examine its properties from both theoretical and empirical perspectives. We identify the significance of the various parameters of the utility function, and demonstrate an estimation strategy that can be applied to demand systems involving both a small and large number of commodities.

Date: 2009
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-upt
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