Combining Discrete and Continuous Representations of Preference Heterogeneity: A Latent Class Approach

Unobserved preference heterogeneity has been widely recognized as a critical issue not only for modelling choice behaviour, but also for policy analysis. This paper examines alternative approaches for incorporating heterogeneity in recreational demand. We apply a hybrid model combining discrete and continuous heterogeneity representations of tastes to capture the defining features of both the latent class and the random parameter logit specifications. This model allows for the joint estimation of discrete segments and within segment heterogeneity providing a richer interpretation of preference heterogeneity. A database of recreational trips to forest sites in Mallorca has been used to compare the empirical performance of this hybrid approach with common specifications such as the conditional logit, the random parameter logit, and the latent class model.     

Latent class count models of total visitation demand: <Emphasis Type="Italic">days out hiking in the eastern Alps</Emphasis>

We report preliminary results on the investigation of the hypothesis of the existence of latent classes in the total demand for days out in a vast section of the Italian Eastern Alps. Finite mixing is informed by socioeconomic variables and it is limited to the demand portion of a hurdle model of visitation. Gradually more flexible count models are estimated moving from the Poisson to the Negative Binomial -1 and -2, to the generalized negative binomial. The implications for expected consumers surplus, predicted visitation and choke prices are discussed for a plausible 2 class model where years of experience play an important role in class membership.      

Impact of cooperative membership on market performance of Nepali goat farmers

In developing countries, agricultural cooperatives are increasingly used by farmers as a mechanism to gain market power in input and output markets. To assess the impact of cooperative membership on market channel selection and pricing outcomes, we conducted a survey of 661 Nepali goat farmers in 2019–20 and applied an endogenous switching probit model to analyze the data. Our findings indicate that cooperative membership had a significant and positive influence on farmers choosing cooperatives as their market channel. Additionally, farmers who sold their goats through cooperatives received significantly higher prices than those who sold through local markets or to goat collectors. We also observed that farmers who had access to price information were able to obtain better prices for their goats. Overall, our study highlights the potential benefits of promoting cooperative membership and marketing through cooperatives, as these efforts can help farmers improve the returns on their agricultural investments.     

Assessing the convergence and mobility of nations without artificially specified class boundaries

There is a long-established practice in the empirical growth and convergence literature of classifying countries into groups or clubs by arbitrarily specifying group boundaries. A problem with this approach is that determining boundaries in a particular fashion also determines the nature of the group in a way that is often prejudicial for analysis ultimately affecting the way transition and class mobility behavior is evaluated. Here a semi-parametric technique for class categorization without resort to arbitrarily specified frontiers is proposed and the convergence of classes and mobility between them is studied in the context of the size distribution of per capita GDP of nations. Category membership is partially determined by the commonality of observed behavior of category members: partial in the sense that only the probability of category membership in each category is determined for each country. Such an approach does not inhibit the size of classes or the nature of transitions between them. A study of the world distribution over the 40 years preceding 2010 reveals substantial changes in class sizes and mobility patterns between them which are very different from those observed in a fixed class size analysis.     

A Latent Class Nested Logit Model for Rank-Ordered Data with Application to Cork Oak Reforestation

We analyze stated ranking data collected from recreational visitors to the Alcornocales Natural Park (ANP) in Spain. The ANP is a large protected area which comprises mainly cork oak woodlands. The visitors ranked cork oak reforestation programs delivering different sets of environmental (reforestation technique, biodiversity, forest surface) and social (jobs and recreation sites created) outcomes. We specify a novel latent class nested logit model for rank-ordered data to estimate the distribution of willingness-to-pay for each outcome. Our modeling approach jointly exploits recent advances in discrete choice methods. The results suggest that prioritizing biodiversity would increase certainty over public support for a reforestation program. In addition, a substantial fraction of the visitor population are willing to pay more for the social outcomes than the environmental outcomes, whereas the existing reforestation subsidies are often justified by the environmental outcomes alone.     

Spatial Heterogeneity of Willingness to Pay for Forest Management

The paper investigates the spatial heterogeneity of public’s preferences for the implementation of a new country-wide forest management and protection program in Poland. Spatial econometric methods and high resolution geographical information system data related to forest characteristics are used to explain the variation in individual-specific willingness to pay (WTP) values, derived from a discrete choice experiment study. We find that respondents’ WTP is higher the closer they live to their nearest forest, and the scarcer forests are in the area where they live. Interestingly, the higher the ecological value of forests in respondents’ area, the more people prefer extending areas of national forest protection. We also investigate spatial patterns in individual-specific WTP scores and in latent class membership probabilities, finding that preferences are indeed spatially clustered. We argue that this clustering should be taken into account in forest management and policy-making.     

What is the benefit of membership in farm producer organizations? The case of coffee producers in Peru

Empirical evidence of the benefit of farm producer organizations (FPOs) in the developing world is mounting. There is, however, no work in South America on the relationship between FPO membership and farm-level performance. We address the gap by estimating the treatment effect of FPO membership with respect to three outcomes: quantity produced, quantity sold, and price received. The empirical application focuses on the Peruvian coffee sector, where FPOs may have played an important role during the recent price crisis. A sample of approximately 9,000 survey responses from Peruvian coffee producers during the 2015–19 period is used in the analysis. Results show a positive treatment effect of FPO membership on all three farm-level outcomes. Compared to non-FPO members, FPO members produced 120–295 kg/ha more, sold 118–296 kg/ha more, and received 0.42–1.53 PEN/kg more. We also find evidence of heterogeneity in the estimated effect of FPO membership across time, farm size, and membership probability. The findings yield novel implications in terms of policy support for FPOs.     

Measurement Error with Accounting Constraints: Point and Interval Estimation for Latent Data with an Application to U.K. Gross Domestic Product

An econometric methodology is proposed for reconciling inaccurate measures of latent data which are subject to accounting constraints. The method deals with the case in which the measurement errors are serially correlated, generalizing previous contributions. A class of efficient estimators are derived for the latent data. Consistent estimators for the weight matrices applied to the observed information based on a linear regression procedure are obtained together with confidence interval estimators for these weight matrices. Approximate confidence intervals are suggested for the latent data themselves together with specification tests for the assumptions underlying the procedure. An application of the proposed method is made to U.K. Gross Domestic Product in constant prices for 1958Q–1989Q4.     

Using Angler Characteristics and Attitudinal Data to Identify Environmental Preference Classes: A Latent-Class Model

A latent-class model of environmental preference groups is developed and estimated with only the answers to a set of attitudinal questions. Economists do not typically use this type of data in estimation. Group membership is latent/unobserved. The intent is to identify and characterize heterogeneity in the preferences for environmental amenities in terms of a small number of preference groups. The application is to preferences over the fishing characteristics of Green Bay. Anglers answered a number of attitudinal questions, including the importance of boat fees, species catch rates, and fish consumption advisories on site choice. The results suggest that Green Bay anglers separate into a small number of distinct classes with varying preferences and willingness to pay for a PCB-free Green Bay. The probability that an angler belongs to each class is estimated as function of observable characteristics of the individual. Estimation is with the expectation–maximization (E–M) algorithm, a technique new to environmental economics that can be used to do maximum-likelihood estimation with incomplete information. As explained, a latent-class model estimated with attitudinal data can be melded with a latent-class choice model. Edward Morey and Jennifer Thacher are equal authors and rotate authorship across articles.     

Norm-Based Trade Union Membership: Evidence for Germany

Abstract. In the absence of closed shops and discriminatory wage policies, union membership can be explained by the existence of social norms. We describe a model, incorporating institutional features of the German labour market, which explicitly allows for social custom effects in the determination of union membership. Using panel data for Germany, we find evidence for according effects which restrict free‐riding. The impact of social norms tends to increase with net union density. Hence, observed reductions in the demand for union membership can weaken the impact of a norm and accentuate the free‐rider problem.     

Group identification

I study a model of group identification in which individuals' opinions as to the membership of a group are aggregated to form a list of group members. Potential aggregation rules are studied through the axiomatic approach. I introduce two axioms, meet separability and join separability, each of which requires the list of members generated by the aggregation rule to be independent of whether the question of membership in a group is separated into questions of membership in two other groups. I use these axioms to characterize a class of one-vote rules, in which one opinion determines whether an individual is considered to be a member of a group. I then show that the only anonymous one-vote rule is self-identification, in which each individual determines for himself whether he is a member of the group.     

A Discussion of “Using Angler Characteristics and Attitudinal Data to Identify Environmental Preference Classes: A Latent-Class Model”

In the current issue of Environmental and Resource Economics, Morey et al. (2006) discuss a new approach to using attitudinal data in latent class modeling. We compare this approach with the one taken in Boxall and Adamowicz (2002), in the context of a discrete choice, random utility framework with heterogeneous preferences. We derive the respective likelihood functions of the two approaches to show that they are structurally similar, and discuss their implications for the use of attitudinal data. We conclude with a discussion comparing the relative merits of latent class and random parameters (mixed logit) modeling, offering the view that as a practical matter, choosing between them depends on the analyst’s judgment about the correlation of preference parameters.     

Hurdle and Latent Class Approaches to Serial Non-Participation in Choice Models

In repeated choice modelling studies, it is often the case that individuals always select the status quo option. Although this pattern may reflect considered choices, they may also be the result of alternative decisions about whether to participate in the choice process at all. Alternative methods of dealing with this behaviour, each with associated implications for estimates of economic values, are presented. In particular we consider the alternative strategies of excluding such individuals from the data, using hurdle models to explicitly model this group, and propose the use of latent class models to endogenously allow for different preference structures. An advantage of the latent class approach is that the form of the non-participation need not be defined in advance. These approaches are considered using UK choice experiment data on food choices where the attributes include genetic modification of food. The latent class approach reveals the presence of two forms of non-participation in the data. This paper draws work commissioned by UK Department of Environment Food and Rural Affairs (DEFRA). The views presented in this paper are those of the authors alone and should not be regarded as those of DEFRA or of individuals within DEFRA.     

Correcting for the endogeneity of pro-environment behavioral choices in contingent valuation

In contingent valuation studies, observed behavioral choices often enter as independent variables in the willingness to pay function. However, these variables may be endogenously determined when the error term in the behavioral model is correlated with the error term in the willingness to pay model. We investigate the effects of correcting for the endogeneity of a variable, namely membership status in environmental organizations that proxies unobservable characteristics of the respondents. Jointly modeling the membership variable and the willingness to pay response yields an estimate for the effect of the former that contradicts previous findings but is intuitive and agrees with theoretical expectations.     

Fashionable food: a latent class analysis of social status in food purchases

A framed field experiment combined with a latent class econometric approach was used to investigate how prestige-seeking behaviour influences food choices. We propose a theoretical framework to test conspicuous consumption of specialty food products. We test the hypothesis empirically by categorizing individuals into unobserved latent classes according to their general prestige-seeking behaviour. We find evidence of food consumption driven by prestige to the point of becoming a symbol of social status. The prestige-seeking behaviour seems to be motivated by invidious comparison or higher-class individuals seeking to differentiate themselves from lower-class individuals; and pecuniary emulation, or lower-class individuals buying prestigious goods in order to be perceived as members of a higher class. Findings from this study revealed that the effects of differentiating labelling attributes had a higher impact for individuals classified into classes with prestige-seeking behaviour to attain an elevated social status.     

Modes of innovation in knowledge-intensive business services evidence from Lombardy

The present paper investigates the sectoral variety and common patterns across different typologies of knowledge-intensive business services (KIBS). We examine this issue by considering the case of Lombardy, a highly developed manufacturing area the industrial activities of which are experiencing a pervasive transformation towards higher knowledge content, demanding stronger and more pervasive support by advanced services. Drawing on an original survey-based firm-level dataset, we analyze innovation patterns across KIBS, evaluating the explanatory power of traditional classifications of the service sector, as well as the heterogeneity driven by firm and market specific characteristics. Our findings highlight four profiles of KIBS: interactive innovation mode, product innovation mode, conservative innovation mode and techno-organizational innovation mode. When examining in more depth the variables that are associated with cluster membership, we find that firm strategy is the most significant determinant, with size, customer location, and training also playing a role in defining cluster specificities.

The signs of the co-state variables and sufficiency conditions in a class of optimal control problems

A class of optimal control problems is identified, for which co-state variables have definite signs and the Maximum Principle is sufficient for optimality. The restrictions defining this class of problems are given an economic interpretation.     

Special Interest Group Formation in the United States: Do Special Interest Groups Mirror the Success of their Spatial Neighbors?

Special interest groups exert a great deal of influence over political outcomes in the United States. Understanding the determining factors for the formation of special interest groups is important. However, the literature has excluded the role of spatial neighbors. This article employs spatial econometric techniques to discriminately analyze the factors determining the number of special interest groups in a state. While geographic location is not a factor, gross state product, state general expenditures, union membership, and the percentage of manufacturing employment relationships between states are crucial in the formation of special interest groups across states.     

Level the Playing Field to Bolster the Boardroom: Sports as a Springboard for Women's Labor Force Advancement in Asia

We promote women's participation in sports as part of a solution to better integrate women into the labor force of Asian economies. Women in Asia lag other regions in terms of labor force participation and membership in corporate leadership bodies; this is particularly acute in East Asia. Involvement in sport has been found to be associated with long‐term economic benefits for women internationally, including enhanced returns to education and labor outcomes. We propose a number of sports program‐related policies for Asian countries to consider in order to better integrate women into education, society, labor, and corporate boardrooms.