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Welfare calculations in discrete choice settings: an exploratory analysis of error term correlation with finite populations
KTH, School of Architecture and the Built Environment (ABE), Transport Science, Transport and Location Analysis. KTH, School of Architecture and the Built Environment (ABE), Centres, Centre for Transport Studies, CTS.ORCID iD: 0000-0001-5290-6101
2012 (English)In: Transport Policy, ISSN 0967-070X, Vol. 19, no 1, 76-84 p.Article in journal (Refereed) Published
Abstract [en]

A difference in logsum terms (also known as inclusive values) is becoming a standard practice for anticipating the welfare impacts of transport policy when choice alternatives are discrete and behavior is (assumed to be) random-utility maximizing. However, this calculation is only an approximation when the population under study is finite. This paper examines the effect of error term correlations in such welfare analyses with finite samples, recognizing that individual preferences and unobserved attributes influencing choice are unlikely to change much, if at all, across scenarios or across alternatives. Such measures appear reasonably robust to deviations in assumptions of correlation. Nevertheless, we identify cases when the synthetic population samples need to be quite large for the average logsum to be realized. Another finding in these results is the substantial variation that emerges across synthetic populations, suggesting that policies that appear welfare-improving (when evaluated with average welfare formulations) may well be welfare-reducing (or vice versa) for a wide variety of actual, finite populations.

Place, publisher, year, edition, pages
2012. Vol. 19, no 1, 76-84 p.
Keyword [en]
Welfare calculation, Discrete choice, Log-sum, Compensating variation, Error correlation, Finite population
National Category
Transport Systems and Logistics
URN: urn:nbn:se:kth:diva-71363DOI: 10.1016/j.tranpol.2011.09.002ISI: 000298203300010ScopusID: 2-s2.0-80053378856OAI: diva2:486694
TrenOp, Transport Research Environment with Novel Perspectives
TSC import 189 2012-01-30. QC 20120131Available from: 2012-01-31 Created: 2012-01-31 Last updated: 2012-06-11Bibliographically approved

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Karlström, Anders
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