Random Coefficient Models for Stated Preference Surveys

This paper combines the use of random coefficient discrete choice models that allow for correlated errors in the form of unobserved preference heterogeneity with an investigation of the reliability and usefulness of rankings data. For the data we examine, we find significant unobserved preference heterogeneity in the rankings, which violates the underlying assumptions of the rank-ordered logit model. Further, directly modeling unobserved preference heterogeneity results in significant improvement in the precision of the parameter estimates and in estimated Willingness to Pay (WTP). The reliability and usefulness of rankings data should be re-examined with econometric models not subject to the Independence of Irrelevant Alternatives (IIA).