6.4 Random Utility Models.pdf - Random Utility Models Random Utility Maximization(RUM Models \u2022 A RUM model considers an individual\u2019s discrete choice

6.4 Random Utility Models.pdf - Random Utility Models...

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Random Utility Models
Random Utility Maximization (RUM) Models A RUM model considers an individual’s discrete choice of one recreation site from a set of many possible sites on a single choice occasion in a season. The choice of site is assumed to depend on the characteristics of the sites. The choice of site implicitly reveals how an individual trades off one site characteristic for another. Since trip cost is always included as one of the characteristics, the model implicitly captures trade-offs between money and the other characteristics. RUM travel cost models can effectively estimate the welfare value of a change in site quality
Graphically: Effect of a change in site quality Travel Cost $ Yo Y1 Number of trips TCo A+B = Willingness to pay for trips A = consumer surplus B = Total trip cost C = Benefit of improved site quality A c B