Bounding WTP distributions to reflect the 'actual'consideration set

Citation

Campbell D, Hensher DA & Scarpa R (2014) Bounding WTP distributions to reflect the 'actual'consideration set. Journal of Choice Modelling, 11, pp. 4-15. https://doi.org/10.1016/j.jocm.2014.02.004

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

Journal
Journal of Choice Modelling: Volume 11

People

Professor Danny Campbell

Professor, Economics