Quick Search:

uzh logo
Browse by:
bullet
bullet
bullet
bullet

Zurich Open Repository and Archive

Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-51796

Sennhauser, Michele (2010). Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments. Working paper series / Socioeconomic Institute No. 1014, University of Zurich.

[img]
Preview
PDF
695kB

Abstract

This article assesses how the form of the utility function in discrete-choice experiments (DCEs) affects estimates of willingness-to-pay (WTP). The utility function is usually assumed to be linear in its attributes. Non-linearities, in the guise of interactions and higher-order terms, are applied only rather ad hoc. This paper sheds some light on this issue by showing that the linear utility function can be a risky choice in DCEs. For this purpose, a DCE conducted in Switzerland to assess preferences for statutory social health insurance is estimated in two ways: first, using a linear utility function; and second, using a non-linear utility function specified according to model specification rules from the econometrics and statistics literature. The results show that not only does the non-linear function outperform the linear specification with regard to goodness-of-fit, but it also generates significantly different WTP. Hence, the functional form of the utility function may have significant impact on estimated WTP. In order to produce unbiased estimates of preferences and to make adequate decisions based on DCEs, the form of the utility function should become more prominent in future experiments.

Downloads

359 downloads since deposited on 29 Nov 2011
118 downloads since 12 months

Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
DDC:330 Economics
JEL Classification:C52, C9, I11, I18
Language:English
Date:November 2010
Deposited On:29 Nov 2011 15:09
Last Modified:09 Jul 2012 05:00
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html

Users (please log in): suggest update or correction for this item

Repository Staff Only: item control page