Addressing endogeneity in residential location models

Some empirical residential location choice models have reported dwelling-unit price estimated parameters that are small, not statistically significant, or even positive. This would imply that households are non-sensitive to changes in dwelling unit prices or location taxes, which is not only against intuition, but also makes the models useless for policy analysis. One explanation for this result is price endogeneity, which means that the price is correlated with the error term in the econometric model. This problem is caused either by the simultaneous determination of the supply and the demand for dwelling units in aggregated models, or by omitted attributes that are correlated with the price, in the disaggregated ones. The treatment of endogeneity in discrete choice models is an area of ongoing research in econometrics. Therefore, methods to treat this problem began to be proposed only in the last decade, and have not been thoroughly analyzed for residential location models. This thesis evaluated the available methods to treat endogeneity in discrete choice models. Each method was tested in terms of its applicability and robustness in a residential location choice framework, using a set of Monte Carlo experiments. The results showed that the control-function method (Petrin and Train, 2004) is the most promising one to address endogeneity in this framework because it is the best to handle individual level endogeneity and it is tractable with available estimation software.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Civil and Environmental Engineering.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Author dc:creator

• Guevara-Cue, Cristián Angelo

Advisor dc:contributor.advisor

• Moshe E. Ben-Akiva.

• Civil and Environmental Engineering.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/31150

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/31150