Valuing New Product and Policy Characteristics using a Simple Linear Program | Spencer Banzhaf

Dr. Spencer Banzhaf is Professor of Economics at Georgia State University.

He will be presenting his paper ‘Valuing New Product and Policy Characteristics using a Simple Linear Program’.

Abstract

For decades, the Random Utility Model (RUM) has been a workhorse model for such applications as valuing new products or changes in the characteristics of public goods.  RUMS have sometimes been faulted along two lines.  First, for including idiosyncratic errors that imply unreasonably high values for new alternatives and unrealistic substitution patterns.  Second, for involving strong restrictions on functional forms for utility.  This paper shows how, starting with a RUM framework, one can nonparametrically set-identify the answers to policy questions using only the Generalized Axiom of Revealed Preference (GARP).  This approach recasts the RUM errors as departures from GARP, to be minimized using a minimum-distance criterion an provides another avenue for nonparametric identification of the RUM model.  The paper illustrates the approach by estimating bounds on the values of ecological improvements in the Southern Appalachian Mountains, using survey data.

Please email gri.events@lse.ac.uk with the name of the presenter in order to request the Zoom joining details for this workshop by by 5pm on Tuesday 1st June 2021.