Discrete/Continuous Models of Consumer Demand with Binding Non-Negativity Constraints
1990-10
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Discrete/Continuous Models of Consumer Demand with Binding Non-Negativity Constraints
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1990-10
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Center for Economic Research, Department of Economics, University of Minnesota
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Working Paper
Abstract
Consumers in this model are assumed to maximize utility with respect to two goods, one
of which is inessential and available in several alternative forms. Decisions rules for the consumers
are derived for two cases: choosing one alternative or forgoing the consumption of the inessential
good. Choice probabilities, the demand equations and the zero-consumption probability are
derived and reflect the interrelatedness of the discrete/continuous choices and the binding nonnegativity
constraint. We show that traditional discrete/continuous choice models yield estimates
of demand which arc biased and choice probabilities, which in some circumstances, arc not biased.
The model is then applied to coffee data.
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Previously Published Citation
Chiang, J. and Lee, L., (1990), "Discrete/Continuous Models of Consumer Demand with Binding Non-Negativity Constraints", Discussion Paper No. 261, Center for Economic Research, Department of Economics, University of Minnesota.
Suggested citation
Chiang, Jeongwen; Lee, Lung-Fei. (1990). Discrete/Continuous Models of Consumer Demand with Binding Non-Negativity Constraints. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55560.
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