Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      The IPS Property
      05 Jul 2006Working Paper Summaries

      The IPS Property

      by Thomas J. Steenburgh
      This paper is about discrete-choice and econometric models. The "invariant proportion of substitution," or IPS, property comes into play when, for example, a consumer faces a choice among three laptop computers with slightly different attributes. How will improvements to one laptop's attributes affect how the consumer chooses to substitute one alternative for another? Steenburgh looked at probabilities based on assumptions about consumers' utility-maximizing behavior. Key concepts include:
      • The IPS property can be interpreted as an implicit assumption that is made to attain parsimony at the expense of flexibility.
      • Idiosyncratic variation in the consumer's taste parameters can eliminate the IPS restriction.
      LinkedIn
      Email

      Author Abstract

      This article 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 assumption 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. Keywords: Discrete-Choice Models, Econometric Models

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2004
      • HBS Working Paper Number: 05-022
      • Faculty Unit(s):
        Trending
          • 24 Oct 2016
          • Research & Ideas

          Bernie Madoff Explains Himself

          • 25 Feb 2019
          • Research & Ideas

          How Gender Stereotypes Kill a Woman’s Self-Confidence

          • 08 Mar 2021
          • In Practice

          COVID Killed the Traditional Workplace. What Should Companies Do Now?

          • 14 Apr 2021
          • Research & Ideas

          The High Cost of the Slow COVID Vaccine Rollout

          • 05 Apr 2021
          • What Do You Think?

          Why Can’t More Leaders Teach?

      Find Related Articles
      • Consumer Behavior
      • Financial Services

      Sign up for our weekly newsletter

      Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
      ǁ
      Campus Map
      Harvard Business School Working Knowledge
      Baker Library | Bloomberg Center
      Soldiers Field
      Boston, MA 02163
      Email: Editor-in-Chief
      →Map & Directions
      →More Contact Information
      • Make a Gift
      • Site Map
      • Jobs
      • Harvard University
      • Trademarks
      • Policies
      • Digital Accessibility
      Copyright © President & Fellows of Harvard College