Discrete Choice with Congestion
Paper joint with Matias Makiranta
Abstract:
We model discrete choice settings where capacity constraints cause the expected utility from choosing an alternative to decline as more individuals choose it, e.g. overcrowding in rush-hour commuter trains. We discuss existence/uniqueness of equilibrium, identi
cation of preference parameters, and distribution of welfare change brought about by switching to (i) centralized random, and (ii) centralized utilitarian allocations, which eliminate congestion but also curtail individual freedom of choice. We further show how to identify behavioral distortions and welfare when decision-makers apply probability weighting and miscalculate expected utilities. We illustrate our methods with microdata on college choice by undergraduate applicants to Cambridge.