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Combining Discrete and Continuous Representations of Preference Heterogeneity: A Latent Class Approach

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Abstract

Unobserved preference heterogeneity has been widely recognized as a critical issue not only for modelling choice behaviour, but also for policy analysis. This paper examines alternative approaches for incorporating heterogeneity in recreational demand. We apply a hybrid model combining discrete and continuous heterogeneity representations of tastes to capture the defining features of both the latent class and the random parameter logit specifications. This model allows for the joint estimation of discrete segments and within segment heterogeneity providing a richer interpretation of preference heterogeneity. A database of recreational trips to forest sites in Mallorca has been used to compare the empirical performance of this hybrid approach with common specifications such as the conditional logit, the random parameter logit, and the latent class model.

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Abbreviations

CL:

Conditional logit

RPL:

Random parameter logit

LC:

Latent class

LC-RPL:

Latent class-random parameter logit

WTP:

Willingness-to-pay

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Authors and Affiliations

  1. Centre de Recerca Econòmica (UIB · Sa Nostra), Ctra. Valldemossa km. 7.5, 07122, Palma de Mallorca, Spain

    Angel Bujosa & Antoni Riera

  2. Department of Economics, College of William and Mary, 129 Morton Hall, Williamsburg, VA, 23187, USA

    Robert L. Hicks

Authors
  1. Angel Bujosa
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  2. Antoni Riera
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  3. Robert L. Hicks
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Correspondence to Angel Bujosa.

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Bujosa, A., Riera, A. & Hicks, R.L. Combining Discrete and Continuous Representations of Preference Heterogeneity: A Latent Class Approach. Environ Resource Econ 47, 477–493 (2010). https://doi.org/10.1007/s10640-010-9389-y

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