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Unformatted text preview: Imbens, Lecture Notes 15, ARE213 Spring 06 1 ARE213 Econometrics Spring 2006 UC Berkeley Department of Agricultural and Resource Economics Discrete Response Models V: McFaddens Conditional Logit Model for Gas/Electric Dryer Purchases McFadden (1982) is interested in analyzing the choice by households to purchas 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 = ,elec + 1 ,elec own i + 2 ,elec persons i + 3 ,elec gasav i + oper elec- oper i + cap elec- cap i + i,elec . The utility for the gas dryer for household i is U i,gas = ,gas + 1 ,gas own i + 2 ,gas persons i + 3 ,gas gasav i + oper gas- oper i + cap gas- cap + i,gas . The utility for no dryer for household i is U i,no = ,no + 1 ,no own i + 2 ,no persons i + 3 ,no gasav i + i,no . (The operating and capital cost of no dryer are assumed to be zero by McFadden. He probably has not done much handwashing.) McFadden assumes that the three disturbances are independent, and identically distributed with extreme value distribution with cdf...
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- Spring '06