Generalized extreme value (GEV)-based error structures for multiple discrete-continuous choice models

Abstract

This paper formally derives the class of multiple discrete-continuous generalized extreme value (MDCGEV) models, a general class of multiple discrete-continuous choice models based on generalized extreme value (GEV) error specifications. Specifically, the paper proves the existence of, and derives the general form of, closed-form consumption probability expressions for multiple discrete-continuous choice models with GEV-based error structures. In addition to deriving the general form, the paper derives a compact and readily usable form of consumption probability expressions that can be used to estimate multiple discrete-continuous choice models with general cross-nested error structures. The cross-nested version of the MDCGEV model is applied to analyze household annual expenditure patterns in various transportation-related expenses using data from a Consumer Expenditure Survey in the United States. Model estimation results and predictive log-likelihood based validation tests indicate the superiority of the cross-nested model over the mutually exclusively nested and non-nested model specifications. Further, the cross-nested model was amenable to the accommodation of socio-demographic heterogeneity in inter-alternative covariance across decision-makers through a parameterization of the allocation parameters.Discrete-continuous models Kuhn-Tucker (KT) demand systems Multiple discreteness MDCEV GEV Cross-nested error structure