We compare two approaches for estimating the distribution of consumers’ willingness to pay (WTP) in discrete choice models. The usual procedure is to estimate the distribution of the utility coefficients and then derive the distribution ofWTP, which is the ratio of coefficients. The alternative is to estimate the distribution of WTP directly.We apply both approaches to data on site choice in the Alps.We find that the alternative approach fits the data better, reduces the incidence of exceedingly large estimated WTP values, and provides the analyst with greater control in specifying and testing the distribution of WTP.
Utility in willingness to pay space: A tool to address confounding random scale effects in destination choice to the Alps
THIENE, MARA;
2008
Abstract
We compare two approaches for estimating the distribution of consumers’ willingness to pay (WTP) in discrete choice models. The usual procedure is to estimate the distribution of the utility coefficients and then derive the distribution ofWTP, which is the ratio of coefficients. The alternative is to estimate the distribution of WTP directly.We apply both approaches to data on site choice in the Alps.We find that the alternative approach fits the data better, reduces the incidence of exceedingly large estimated WTP values, and provides the analyst with greater control in specifying and testing the distribution of WTP.
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