Consumer surplus for random regret minimisation models

Abstract

This paper is the first to develop a measure of consumer surplus for the Random Regret Minimisation (RRM) model. Following a not so well-known approach proposed two decades ago, we measure (changes in) consumer surplus by studying (changes in) observed behaviour, i.e. the choice probability, in response to price (changes). We interpret the choice probability as a well-behaved approximation of the probabilistic demand curve and accordingly measure the consumer surplus as the area underneath this demand curve. The developed welfare measure enables researchers to assign a measure of consumer surplus to specific alternatives in the context of a given choice set. Moreover, we are able to value changes in the non-price attributes of a specific alternative. We illustrate how differences in consumer surplus between random regret and random utility models follow directly from the differences in their behavioural premises.

Substitutability as a spatial concept to evaluate travel alternatives

“…For example, for welfare analysis it would be valuable to be able to estimate the monetary value a change in substitutability before and after a policy. We believe this is a promising avenue for further research, which could be inspired by the works of De Jong et al (2007), McConnel (1995) and Dekker and Chorus (2018). An entirely different approach could be to develop a substitutability framework based on travellers' perceptions on substitutability.…”

Theoretical Background

“…what is commonly assumed in discrete choice models. For more in-depth discussion, interested readers may refer to Karlstrom and Morey (2003), Batley and Ibáñez Rivas (2013), Dekker (2014), Dekker and Chorus (2018) and Batley and Dekker (2019).…”

Econometric Modelling: Extensions

“…comparison of model fit or simultaneous estimation of different models). RRM models have some difficulties in deriving WTP measures, which is crucial as this is often one of the purposes in most environmental DCE applications, although recently relevant progress has been made (Dekker and Chorus 2018).…”