A generalization of the multinomial logit (MNL) model is developed for cases in which discrete alternatives are ordered so as to induce stochastic correlation among alternatives in close proximity. The model belongs to the Generalized Extreme Value class introduced by McFadden, and is therefore consistent with random utility maximization. If the true model is nearly MNL, iterative estimation on an ordinary MNL computer package provides approximate parameter estimates and a test for the hypothesized failure of the MNL'S "independence from irrelevant alternatives" assumption. A straightforward extension can handle cases where observations have been selected on the basis of a truncated choice set. The model's properties are investigated through a numerical example, and through two empirical applications whose rather unsatisfactory results are very briefly described.

This paper derives empirically tractable formulas for the welfare effects of fare adjustments in passenger peak and off-peak rail and bus transit, and for optimal pricing of those services. The formulas account for congestion, pollution, accident externalities, scale economies, and agency adjustment of transit service offerings. We apply them using parameter values for Washington (DC), Los Angeles, and London. The results support the efficiency of the large current fare subsidies; even starting with fares at 50 percent of operating costs, incremental fare reductions are welfare improving in almost all cases. These findings are robust to alternative assumptions and parameters. (JEL L92, R41, R42, R48)

This paper develops an analytical framework for assessing the second-best optimal level of gasoline taxation taking into account unpriced pollution, congestion, and accident externalities, and interactions with the broader fiscal system. We provide calculations of the optimal taxes for the US and the UK under a wide variety of parameter scenarios. Under our central parameter values, and with the gasoline tax substituting for a distorting tax on labor income, the second-best optimal gasoline tax is $0.95/gal for the US and $1.29/gal for the UK. These values are moderately sensitive to alternative plausible parameter assumptions. The congestion externality is the largest component in both nations, and the higher optimal tax for the UK is due almost entirely to a higher assumed value for marginal congestion cost. Revenue-raising needs, incorporated in a “Ramsey" component, also play a significant role, as do accident externalities and local air pollution. However, we also find that a shift in taxation off gasoline and onto vehicle miles can produce much larger welfare gains than those from implementing second-best optimal gasoline taxes.