The implications of incorrect utility function specification for welfare measurement in choice experiments

Despite the vital role of utility functional form in welfare measurement, the implicationsof working with incorrect utility specifications have not been examined in the choiceexperiments (CE) literature. This paper addresses the importance of the specification ofboth non-monetary attributes and the marginal utility of income. Monte Carloexperiments have been conducted wherein different attribute specifications andassumptions for the Cost parameter –that is, different functional forms of utility– havebeen assumed to generate simulated choices on which Multi-Nomial Logit and MixedLogit models have been estimated under correct and incorrect assumptions about thetrue, underlying utility function. The inferred values have been compared with the trueones directly calculated from the true utility specifications. Results show that workingwith simple experimental designs and continuous-linear specifications makes attributespecification irrelevant for measuring attribute marginal values regardless of the trueeffects the attribute has on utility.