ApolloChoiceModelling forum

Hi

Is there a code in apollo which calculates the consumer surplus based on estimated parameters in either preference or WTP-space?
Or do we have to use the "function" command in R and insert the equation for consumer surplus, and actual numbers, to calculate it?

Hi,

Sadly, Apollo does not have any function to automatically calculate the consumer surplus of a logit model. This is because the expression can change depending on the formulation of the model. You could, however, calculate it “manually”. To do so, you would have to

• Calculate the value of V for each observation using the estimated parameters

• Calculate the logsum for each observation, something like

  Code: Select all

  log(Reduce('+', lapply(V, exp) ))

• Divide by the price coefficient (or -more generally- the marginal utility of price).

That would give you the consumer surplus for each observation.

The process is described in Train (2009), chapter 3, pages 55 – 57. Batley & Ibañez (2013) discuss the process in detail and enumerate the conditions for it to be valid.

References
Train, K. (2009) Discrete choice models with simulation. Cambridge University Press.
Batley, R., & Ibáñez, J. N. (2013). Applied welfare economics with discrete choice models: implications of theory for empirical specification. In Choice Modelling. Edward Elgar Publishing.