The Relationship between Marginal Willingness-to-Pay in the Hedonic and Discrete Choice Models

Maisy Wong

MPRA Paper from University Library of Munich, Germany

Abstract: The two primary approaches to estimate marginal willingness-to-pay (MWTP) for differentiated goods are hedonics (Rosen, 1974) and discrete choice models (McFadden, 1974). Researchers have alluded to a duality between both models. The innovation in this paper is to show that the hedonic MWTP can be written as a function of choice probabilities in the discrete choice model. I find that the hedonic method estimates a weighted average of marginal utilities where higher weights are associated with consumer types whose choice probabilities indicate a high variance regarding their choice (marginal consumers). This weight decreases as choice probabilities approach 0 or 1.

Keywords: Marginal willingness-to-pay; Hedonic models; discrete choice models (search for similar items in EconPapers)
JEL-codes: C52 R30 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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