Oct 1, 2007 Report No：07-07
A Representative Consumer Framework for Discrete Choice Models with Endogenous Total Demand
Standard discrete choice models correspond to „partial‟ utility maximization in which the controlled total is determined exogenously; typically, consumers are assumed to demand at most one unit. The purpose of this paper is to formulate a model in which discrete choice models are incorporated consistently into the full utility maximization framework and to establish a theoretical foundation for discrete choice models that assume no a priori controlled total. We derive the form of the corresponding indirect utility function of a representative consumer and the own-price and cross-price elasticities, and develop a method for measuring welfare, clarifying their implications.
|Keywords||Discrete choice, representative consumer, endogenous demand, logit model, generalized extreme value model|