The multiple discretecontinuous extreme value (MDCEV) model: Role of utility function parameters, identification considerations, and model extensions

Abstract

Many consumer choice situations are characterized by the simultaneous demand for multiple alternatives that are imperfect substitutes for one another. A simple and parsimonious Multiple Discrete-Continuous Extreme Value (MDCEV) econometric approach to handle such multiple discreteness was formulated by Bhat (2005) within the broader Kuhn-Tucker (KT) multiple discrete-continuous economic consumer demand model of Wales and Woodland (1983). This paper examines several issues associated with the MDCEV model and other extant KT multiple discrete-continuous models. Specifically, the paper proposes a new utility function form that enables clarity in the role of each parameter in the utility specification, presents identification considerations associated with both the utility functional form as well as the stochastic nature of the utility specification, extends the MDCEV model to the case of price variation across goods and to general error covariance structures, discusses the relationship between earlier KT-based multiple discretecontinuous models, and illustrates the many technical nuances and identification considerations of the multiple discretecontinuous model structure through empirical examples. The paper also highlights the technical problems associated with the stochastic specification used in the KT-based multiple discretecontinuous models formulated in recent Environmental Economics papers.