The Development and Estimation of a Latent Choice Multinomial Logit Model with Application to Contingent Valuation

10 Pages Posted: 8 Apr 2020

See all articles by Steven B. Caudill

Steven B. Caudill

Auburn University - Department of Economics

Peter A. Groothuis

Appalachian State University, Department of Economics

John Whitehead

affiliation not provided to SSRN

Date Written: July 2011

Abstract

We offer a new approach to investigate hypothetical bias in contingent valuation using a latent choice multinomial logit model. To develop this model, we extend Dempster, Laird, and Rubin's 1977 work on the expectations maximization algorithm to the estimation of a multinomial logit model with missing information on category membership. Our model can be used to determine within‐choice heterogeneity. Using data on the preservation of Saginaw wetlands in Michigan, we find evidence for two types of Yes responders in the data. We suggest that one set of Yes responders consists of yea‐sayers who answer Yes to the hypothetical question but are less likely to pay the bid amount if it were real. We suggest that the second group of respondents does not suffer from hypothetical bias and are more likely to pay the bid amount if it were real. Even if the connection to hypothetical bias cannot be made, our method can be used in sensitivity analyses of willingness‐to‐pay estimates.

Keywords: contingent valuation, hypothetical bias, individual heterogeneity, multinomial logit

Suggested Citation

Caudill, Steven B. and Groothuis, Peter A. and Whitehead, John, The Development and Estimation of a Latent Choice Multinomial Logit Model with Application to Contingent Valuation (July 2011). American Journal of Agricultural Economics, Vol. 93, Issue 4, pp. 983-992, 2011, Available at SSRN: https://ssrn.com/abstract=3570853 or http://dx.doi.org/10.1093/ajae/aar030

Steven B. Caudill (Contact Author)

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States
334-844-2907 (Phone)

Peter A. Groothuis

Appalachian State University, Department of Economics ( email )

Boone, NC 28608
United States

John Whitehead

affiliation not provided to SSRN

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