Work

Misspecified heterogeneity in alternative-specific constants: Omitted variables in discrete choice models for environmental valuation

Year: 2026

Type: article

Abstract: Discrete choice models are widely used in environmental valuation. In this field, many logit-based specifications interact individual-specific variables with attributes, yet omit the interaction of the former with alternative-specific constants (ASCs). This oversight constitutes a fundamental econometric error that, surprisingly, persists even in leading field journals. In this note, we study the multinomial logit (MNL) model and derive a first-order asymptotic approximation for the omitted variable bias. Within this MNL setting, we demonstrate that neglecting ASC interactions generally contaminates all parameter estimates, yielding inconsistent estimates of both attribute coefficients and willingness to pay.

Source: Journal of Choice Modelling

DOI: 10.1016/j.jocm.2026.100620

Authors: Peio Alcorta, Petr Mariel

Institution: University of the Basque Country

Language: English

Topic: Economic and Environmental Valuation

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,090

Funders: Ministerio de Ciencia, Innovación y Universidades, Eusko Jaurlaritza, Ministerio de Ciencia e Innovación, Agencia Estatal de Investigación