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

See all articles by Anders Karlstrom

Anders Karlstrom

Royal Institute of Technology (KTH) - Department of Infrastructural and Urban Planning (INFRA)

Edward R. Morey

University of Colorado at Boulder - Department of Economics; National Bureau of Economic Research (NBER)

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

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

Anders Karlstrom

Royal Institute of Technology (KTH) - Department of Infrastructural and Urban Planning (INFRA) ( email )

SE-100 44 Stockholm
Sweden

Edward R. Morey (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6898 (Phone)
303-492-8960 (Fax)

HOME PAGE: http://www.colorado.edu/Economics/morey/index.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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