Discrete and Continuous Preference Heterogeneity in a Kuhn-Tucker Model: Beach Recreational Demand

Abstract

This study extended an existing Kuhn-Tucker (KT) model to integrate a mixture of discrete and continuous preference heterogeneity to address taste variations at individual and group levels. Specifically, we introduced random parameters into site quality attributes in a latent segmentation KT framework. In an empirical application to beach recreational demand, our proposed model statistically dominated other conventional specifications and revealed heterogeneous preferences for beach quality across and within groups. Our welfare analysis further showed that ignoring either the continuous or discrete component of the mixing distributions might lead to biased welfare estimates as well as opposite policy implications.