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On the path independence conditions for discrete-continuous demand

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  • Batley, Richard
  • Nicolás Ibáñez, J.

Abstract

We consider the manner in which the well-established path independence conditions apply to Small and Rosen's (1981) problem of discrete-continuous demand, focussing especially upon the restricted case of discrete choice (probabilistic) demand. We note that the consumer surplus measure promoted by Small and Rosen, which is specific to the probabilistic demand, imposes path independence to price changes a priori. We find that path independence to income changes can further be imposed provided a numeraire good is available in the consumption set. We show that, for practical purposes, McFadden's (1981) ‘residual income' specification of the conditional indirect utility function offers an appropriate means of representing path independence to price and income changes.

Suggested Citation

  • Batley, Richard & Nicolás Ibáñez, J., 2013. "On the path independence conditions for discrete-continuous demand," Journal of choice modelling, Elsevier, vol. 7(C), pages 13-23.
    • Handle: RePEc:eee:eejocm:v:7:y:2013:i:c:p:13-23
    DOI: 10.1016/j.jocm.2013.04.011
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    References listed on IDEAS

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    1. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-130, January.
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    7. Richard Batley & J. Nicolás Ibá-ez, 2013. "Applied welfare economics with discrete choice models: implications of theory for empirical specification," Chapters, in: Stephane Hess & Andrew Daly (ed.), Choice Modelling, chapter 7, pages 144-171, Edward Elgar Publishing.
    8. Hanemann, W. Michael, 1982. "Applied Welfare Analysis with Qualitative Response Models," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7982f0k8, Department of Agricultural & Resource Economics, UC Berkeley.
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    Cited by:

    1. Gian Carlo Silva Ancco, 2020. "El rol de los ingresos en los modelos de elección discreta," Revista de Análisis Económico y Financiero, Universidad de San Martín de Porres, vol. 2(02), pages 28-33.
    2. Stephane Hess & Andrew Daly & Richard Batley, 2018. "Revisiting consistency with random utility maximisation: theory and implications for practical work," Theory and Decision, Springer, vol. 84(2), pages 181-204, March.
    3. Hensher, David A., 2019. "Context dependent process heuristics and choice analysis – A note on two interacting themes linked to behavioural realism," Transportation Research Part A: Policy and Practice, Elsevier, vol. 125(C), pages 119-122.

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