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Lecture 16

Lecture 16 - Econ 513 USC Fall 2005 Lecture 16 Discrete...

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Unformatted text preview: Econ 513, USC, Fall 2005 Lecture 16. Discrete Response Models: McFadden’s Conditional Logit Model for Gas/Electric Dryer Purchases McFadden (1982) is interested in analyzing the choice by households to purchase an electric dryer, a gas dryer or no dryer at all. He uses a conditional logit model. The starting point is a indirect utility function that depends on the operating and capital cost of the device and interactions of the indicators for the choices with some individual characteristics. The utility for the electric dryer for household i is U i,elec = β ,elec + β 1 ,elec · own i + β 2 ,elec · persons i + β 3 ,elec · gasav i + β oper · elecoper i + β cap · eleccap i + ε i,elec . The utility for the gas dryer for household i is U i,gas = β ,gas + β 1 ,gas · own i + β 2 ,gas · persons i + β 3 ,gas · gasav i + β oper · gasoper i + β cap · gascap i + ε i,gas . The utility for no dryer for household i is U i,no = β ,no + β 1 ,no · own i + β 2 ,no · persons i + β 3 ,no · gasav i + ε i,no . (The operating and capital cost of no dryer are assumed to be zero by McFadden. He probably has not done much hand washing.) McFadden assumes that the three disturbances are independent, and identically distributed with extreme value distribution with cdf F ( ε ) = exp(-...
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Lecture 16 - Econ 513 USC Fall 2005 Lecture 16 Discrete...

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