Discrete-Choice Models and Representative Consumer Theory

32 Pages Posted: 15 Jun 2022

See all articles by Jean-Pierre Dubé

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Joonhwi Joo

University of Texas at Dallas - Naveen Jindal School of Management

Kyeongbae Kim

Sejong University - Department of Economics

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Date Written: June 13, 2022

Abstract

We establish the Hurwicz-Uzawa integrability of the broad class of discrete-choice additive random-utility models of individual consumer behavior with perfect substitutes preferences and divisible goods. We derive the corresponding indirect uility function and then establish a representative consumer formulation for this entire class of models. The representative consumer is always normative, facilitating aggregate welfare analysis. These findings should be of interest to the literatures in macro, trade, industrial organization, labor and ideal price index measurement that use representative consumer models, such as CES and its variants. Our results generalize such representative consumer formulations to the broad, empirically-relevant class of models of behavior that are routinely used in the discrete-choice analysis of micro data, including specifications that do not suffer from the IIA property and that allow for heterogeneous consumer preferences and incomes. When products are indivisible, we show that Hurwicz-Uzawa integrability fails; although some model variants might satisfy a stronger version of quasi-linear integrability.

JEL Classification: C43, D01, D11, D60, E1, L00, M3

Suggested Citation

Dube, Jean-Pierre H. and Joo, Joonhwi and Kim, Kyeongbae, Discrete-Choice Models and Representative Consumer Theory (June 13, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2022-75, Available at SSRN: https://ssrn.com/abstract=4136712 or http://dx.doi.org/10.2139/ssrn.4136712

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Marketing Science Institute (MSI) ( email )

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Joonhwi Joo

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX TX 75083-0688
United States
75080 (Fax)

Kyeongbae Kim

Sejong University - Department of Economics ( email )

143-743 Seoul
Korea, Republic of (South Korea)

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