Selecting random parameters in discrete choice experiment for environmental valuation: A simulation experiment

Abstract

This paper examines the various tests commonly used to select random parameters in choice modelling. The most common procedures for selecting random parameters are: the Lagrange Multiplier test as proposed by McFadden and Train (2000), the t-statistic of the deviation of the random parameter and the log-likelihood ratio test. The identification of random parameters in other words the recognition of preference heterogeneity among population is based on the fact that an individual makes a choice depending on her/his: tastes, perceptions and experiences. A simulation experiment was carried out based on a real choice experiment and the results indicated that the power of these three tests depends importantly on the spread and type of the tested parameter distribution.choice experiment, simulation, preference heterogeneity, random parameter logit, tests for selecting random parameters