A Representative Consumer Framework for Discrete Choice Models with Endogenous Total Demand

Standard discrete choice models correspond to 'partial' utility maximization in which the controlled total is determined exogenously; typically, consumers are assumed to demand at most one unit. The purpose of this paper is to formulate a model in which discrete choice models are incorporated consistently into the full utility maximization framework and to establish a theoretical foundation for discrete choice models that assume no a priori controlled total. We derive the form of the corresponding indirect utility function of a representative consumer and the own-price and cross-price elasticities, and develop a method for measuring welfare, clarifying their implications.