President and Fellows of Harvard College
This paper introduces the Invariant Proportion of Substitution (IPS) property. The IPS property holds when the proportion of demand that is created by substitution away from a competing alternative is the same regardless of which of the enhanced good's attributes is improved. Since this property arises from assumptions about the representative utility rather than the assumptions about the unobserved component of utility, models that break The Independence of Irrelevant Alternatives (IIA) property, such as the nested logit and probit models, do not necessarily also break the IPS property. Some models that do break the IPS property are discussed.