Consumer Welfare and Unobserved Heterogeneity in Discrete Choice Models: The Value of Alpine Road Tunnels

28 Pages Posted: 14 Jan 2011

See all articles by Daniel Cerquera

Daniel Cerquera

ZEW – Leibniz Centre for European Economic Research

Hannes Ullrich

University of Copenhagen - Department of Economics; German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service

Date Written: December 1, 2010

Abstract

We investigate the sensitivity of consumer surplus estimates to parametric assumptions on individual preference heterogeneity in a discrete choice framework. We compare results from a parametric random coefficients logit model and a recently proposed nonparametric sieve estimator. In particular, we provide an assessment of the direct economic value of crossing the Alps for the European road freight sector. Using revealed preference data from a detailed survey on transalpine road freight traffic, we estimate the yearly cost of closing the Mont-Blanc Tunnel, which was closed for 3 years following a large accident in early 1999. Ultimately, our results permit the economic evaluation of security and transport policy measures affecting transalpine traffic. Our findings suggest that the way we model unobserved heterogeneity significantly affects our welfare results.

Keywords: Discrete Choice, Consumer Surplus, Nonparametric Estimation, Transalpine Freight

JEL Classification: R41, C14, C35, L91, H54

Suggested Citation

Cerquera, Daniel and Ullrich, Hannes, Consumer Welfare and Unobserved Heterogeneity in Discrete Choice Models: The Value of Alpine Road Tunnels (December 1, 2010). ZEW - Centre for European Economic Research Discussion Paper No. 10-095, Available at SSRN: https://ssrn.com/abstract=1739751 or http://dx.doi.org/10.2139/ssrn.1739751

Daniel Cerquera (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Hannes Ullrich

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+493089789521 (Phone)

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