Structural models of complementary choices

This article reviews the rapidly growing literature on structural models of complementary choices. It discusses recent modeling developments and identifies promising areas for future research.     

Combining Sources of Preference Data for Modeling Complex Decision Processes

We review current state-of-the-art practices for combining preference data from multiple sources and discuss future research possibilities. A central theme is that any one data source (e.g., a scanner panel source) is often insufficient to support tests of complex theories of choice and decision making. Hence, analysts may need to embrace a wider variety of data types and measurement tools than traditionally have been considered in applied decision making and choice research. We discuss the viability of preference-stationarity assumptions usually made when pooling data, as well as random-utility theory-based approaches for combining data sources. We also discuss types of models and data sources likely to be required to make inferences about and estimate models that describe choice dynamics. The latter discussion is speculative insofar as the body of literature on this topic is small.     

IMPROVING ENVIRONMENTAL POLICY: ARE MARKETS THE SOLUTION?

While market approaches are clearly valuable for improving U.S. environmental policy, they cannot solve all of the problems, and not necessarily the most difficult ones. They can ensure that a given total abatement is achieved at minimum cost. But, if pollution damages depend on how abatement effort is allocated among polluters, this is not necessarily the most desirable outcome. One also needs to be sure that the potential gains from trade implicit in market solutions will actually be realized within some given time; the empirical evidence here is not necessarily promising. Rather than how aggregate abatement should be distributed among polluters, the chief difficulty often lies in determining how much overall abatement is required. A key factor that economists tend to overlook is the difficulty of ascertaining just how benefits vary with abatement effort. Uncertainty and risk aversion in connection with the marginal benefit curve may explain regulatory actions that are otherwise hard to justify.     

Decision Strategy and Structure in Households: A “Groups” Perspective

From a practical perspective, (arguably) most consumer decisions are not made in isolation of the households in which consumers are inserted, yet we commonly treat them econometrically as if they were. The purpose of this workshop was to take some initial steps in defining needed research in household decision making that structurally accounts for goal sharing, utility interdependence, taste heterogeneity, choice set formation, power structures, group size and composition, and so forth. We also considered conditions under which aggregation of tastes, utility and choices might occur and make sense from both behavioral and modeling perspectives.     

Valuation and management of tropical forests

This paper develops a framework for the valuation and management of tropical forests that reflects their ecological and economic characteristics. The analysis demonstrates the importance of modeling the feasible use patterns and the information structure in tropical forest management decisions. The model predicts that cases exist where the foresighted management of forests leads to more preservation than the traditional expected value approach. An application in Thailand provides evidence that such cases occur in relevant ranges of benefit flows. The model focuses tropical forest management on assessments of sustainability and feasible sequences in light of uncertainty and information flows.     

The irreversibility effect in environmental decisionmaking

We provide a new, more general, definition for the irreversibility effect and demonstrate its relevance to problems involving environmental and other decisions under uncertainty. We establish several analytical and numerical results that suggest both that the effect holds more widely than generally recognized, and that an existing result (Epstein’s Theorem), giving a sufficient condition for determining whether the effect holds, can be applied more widely than previously indicated, in particular to problems involving intertemporally nonseparable benefit functions. We further show that a low elasticity of intertemporal substitution will however result in failure of the effect.      

Context Dependence and Aggregation in Disaggregate Choice Analysis

There is an emerging consensus among disciplines dealing with human decision making that the context in which a decision is made is an important determinant of outcomes. This consensus has been slow in the making because much of what is known about context effects has evolved from a desire to demonstrate the untenability of certain common assumptions upon which tractable models of behavior have generally been built. This paper seeks tobring disparate disciplinary perspectives to bear on the relation between context and choice, to formulate (1) recommendations for improvements to the state-of-the-practice of Random Utility Models (RUMs) of choice behavior, and (2) a future research agenda to guide the further incorporation of context into these models of choice behavior.     

Perspectives of a new liberalisation round

The dollar crisis and the temporary import surcharge imposed by the Nixon Administration have awakened the free-enterprise world to the dangers of creeping protectionism. But what must now be done in order to secure trade liberalisation? The following articles deal with this very important question.     

Grid Load Contributions Through Electric Vehicles and Their Uncertainties

With the numbers of electric vehicles on the increase, their additional electricity demand can no longer be neglected. From a power systems’ perspective, it is the time dependent electricity consumption that matters. In particular, the peak demand is increased in the case of uncontrolled charging, imposing additional stress on the system. Unfortunately, since there is an absence of representative electric vehicle driving patterns, a quantification of such temporal charging requirements is challenging. To overcome this problem, we developed a detailed model, which maps combustion engine vehicles onto electric vehicle equivalents. The model’s main strengths are the consideration of the diversity within the vehicle fleet as well as the differentiation into the boundary cases of pure battery electric vehicles and plug-in hybrid electric vehicles. Applied to a German traffic study, load curves for these two cases were generated. In addition, the existing uncertainty in between was quantified using Monte Carlo method. We show that the peak energy demand through electric vehicles is much greater on working days than on weekend days. Moreover, we find that the distinction between pure and plug-in-hybrid electric vehicles matters, at least for the time being. Apart from the numerical results, the model is well suited to generate input for more sophisticated investigations of charging strategies within energy system simulations.     

Natural resources damages from Chernobyl

Conclusion In this note, we have reported a simple attempt to examine the stability over time of willingness-to-pay measures. By running a simple regression equation, we are able to explain why the average willingness to pay fell between two consecutively hunting seasons. The most important explanation is that hunting in the second hunting season was affected by the nuclear radiation accident at Chernobyl. Almost 10 percent of the hunters stated that their willingness to pay was affected due to the fact that their moose meat was contaminated. Since there are 24,000 moose hunters in the county of Västerbotten, we arrive at a yearly loss of about SEK 2 million for the county. Assuming that our figures apply also at the national level, Swedish moose hunters suffered a loss of almost SEK 30 million in the 1986 hunting season. If the same impact on hunters was felt for, say, 3 to 4 years, the present value of the loss caused by the Chernobyl accident could amount to over SEK 100 million (assuming a discount rate of 5 percent). This is a considerable amount, given that Swedish moose hunters constitute only a small fraction of all those who were affected by the Chernobyl accident.