Calculating the Exact Compensating Variation in Logit and Nested-Logit Models with Income Effects: Theory, Intuition, Implementation, and Application
29 Pages Posted: 9 Jul 2004
Date Written: May 2003
Abstract
An exact formula for the expected compensating variation is derived for logit and nested-logit models with income effects. Intuition, examples, and an application are provided. The appendix contains a formal proof. The formula is applied to estimate the E[cv]s salmon anglers in Maine would associate with changes in catch rates at Maine and Canadian Rivers.
Keywords: Compensating variation, income effects, random utility, discrete choice, recreational demand
JEL Classification: D61
Suggested Citation: Suggested Citation
Karlstrom, Anders and Morey, Edward R., Calculating the Exact Compensating Variation in Logit and Nested-Logit Models with Income Effects: Theory, Intuition, Implementation, and Application (May 2003). Available at SSRN: https://ssrn.com/abstract=562802 or http://dx.doi.org/10.2139/ssrn.562802
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