Econometric analysis of individuals’ preference heterogeneity: An application to the economic evaluation of uphill landscape

Sergio Colombo, Nick Hanley

Abstract

The need to account for respondents’ preference heterogeneity in stated choice models has motivated researchers to apply random parameter logit and latent class models. In this paper we compare these three alternative ways of incorporating preference heterogeneity in stated choice models and evaluate how the choice of model affects welfare estimates in a given empirical application. Finally, we discuss what criteria to follow to decide which approach is most appropriate.

Keywords

Heterogeneity; Latent class models; Covariance heterogeneity models; Random parametermodels; Uphill landscape

Subject classification

C52, Q24.

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References

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