Nonparametric Discrete Choice Models With Unobserved Heterogeneity
Southern Methodist University (SMU) - Edwin L. Cox School of Business
Pradeep K. Chintagunta
University of Chicago
Rosa L. Matzkin
University of California, Los Angeles (UCLA)
SMU Cox School of Business Research Paper No. 07-005
In this research, we provide a new method to estimate discrete choice models with unobserved heterogeneity that can be used with either cross-sectional or panel data. The method imposes nonparametric assumptions on the systematic subutility functions and on the distributions of the unobservable random vectors and the heterogeneity parameter. The estimators are computationally feasible and strongly consistent. We provide an empirical application of the estimator to a model of store format choice. The key insights from the empirical application are: 1) consumer response to cost and distance contains interactions and non-linear effects which implies that a model without these effects tends to bias the estimated elasticities and heterogeneity distribution and 2) the increase in likelihood for adding non-linearities is similar to the increase in likelihood for adding heterogeneity, and this increase persists as heterogeneity is included in the model.
Number of Pages in PDF File: 57
Keywords: nonparametric, discrete choice, heterogeneity, random effects, store choice, panel data
JEL Classification: C14, C23, C33, C35working papers series
Date posted: September 3, 2007
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