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Alternative nested logit models: structure, properties and estimation

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  • Koppelman, Frank S.
  • Wen, Chieh-Hua
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    Abstract

    Two distinctly different nested logit models have been widely used in both research and applications. The differences, not widely recognized, between these models will substantially influence estimation results, behavioral interpretation and policy analysis. The McFadden nested logit model is derived from random utility theory; the Daly or non-normalized nested logit model is based on probability relationships and is not consistent with utility maximization. This paper describes and compares the model structure and properties of these different nested logit models identifying important differences between the different model structures. An empirical application demonstrates that the different nested logit models produce dramatically different results with respect to nesting structure and the relative importance of utility components. Thus, the selection of one or another of the nested logit models has important consequences for model interpretation and prediction with consequent impacts on policy analysis. The authors prefer the McFadden model because of its basis in utility theory, intuitively reasonable elasticity relationships and a clear interpretation of utility function parameters across alternatives.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

    Volume (Year): 32 (1998)
    Issue (Month): 5 (June)
    Pages: 289-298

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    Handle: RePEc:eee:transb:v:32:y:1998:i:5:p:289-298

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    References

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    1. Herriges, Joseph A. & Kling, Catherine L., 1996. "Testing the consistency of nested logit models with utility maximization," Economics Letters, Elsevier, vol. 50(1), pages 33-39, January.
    2. Brownstone, David & Small, Kenneth A, 1989. "Efficient Estimation of Nested Logit Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(1), pages 67-74, January.
    3. Daly, Andrew, 1987. "Estimating "tree" logit models," Transportation Research Part B: Methodological, Elsevier, vol. 21(4), pages 251-267, August.
    4. Yai, Tetsuo & Iwakura, Seiji & Morichi, Shigeru, 1997. "Multinomial probit with structured covariance for route choice behavior," Transportation Research Part B: Methodological, Elsevier, vol. 31(3), pages 195-207, June.
    5. Kling, Catherine L. & Herriges, Joseph A., 1995. "Empirical Investigation of the Consistency of Nested Logit Models with Utility Maximization (An)," Staff General Research Papers 1499, Iowa State University, Department of Economics.
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    Cited by:
    1. Hunt, Gary L. & Mueller, Richard E., 2010. "Returns to Skill, Tax Policy, and North American Migration by Skill Level: Canada and the United States 1995 - 2001," CLSSRN working papers clsrn_admin-2010-11, Vancouver School of Economics, revised 26 Mar 2010.
    2. Brian Lee & Paul Waddell, 2010. "Residential mobility and location choice: a nested logit model with sampling of alternatives," Transportation, Springer, vol. 37(4), pages 587-601, July.
    3. Sánchez Navarro, Dennis, 2013. "Análisis de elasticidades en el mercado automotor colombiano (2009 - 2011) mediante un modelo logit anidado
      [Analysis Of Elasticity In Colombian Automotive Market (2009 - 2011) Through A Nested Lo
      ," MPRA Paper 46043, University Library of Munich, Germany.
    4. Laura Márquez-Ramos & Inmaculada Martínez-Zarzoso & Celestino Suárez-Burguet, 2011. "Determinants of Deep Integration: Examining Socio-political Factors," Open Economies Review, Springer, vol. 22(3), pages 479-500, July.
    5. Bliemer, Michiel C.J. & Rose, John M. & Hensher, David A., 2009. "Efficient stated choice experiments for estimating nested logit models," Transportation Research Part B: Methodological, Elsevier, vol. 43(1), pages 19-35, January.
    6. Koppelman, Frank S. & Sethi, Vaneet & Wen, Chieh-hua, 2001. "Alternative nested logit models: a response to comments by Andrew Daly on an earlier paper of Frank Koppelman and Chieh-hua Wen," Transportation Research Part B: Methodological, Elsevier, vol. 35(8), pages 725-729, September.
    7. Carla Sá & Raymond Florax & Piet Rietveld, 2007. "Living-arrangement and university decisions of Dutch young adults," NIPE Working Papers 14/2007, NIPE - Universidade do Minho.
    8. Daly, Andrew, 2001. "Alternative tree logit models: comments on a paper of Koppelman and Wen," Transportation Research Part B: Methodological, Elsevier, vol. 35(8), pages 717-724, September.
    9. Ahmadi Azari, Kian & Arintono, Sulistyo & Hamid, Hussain & Rahmat, Riza Atiq O.K., 2013. "Modelling demand under parking and cordon pricing policy," Transport Policy, Elsevier, vol. 25(C), pages 1-9.
    10. William Jen & Kai-Chieh Hu, 2003. "Application of perceived value model to identify factors affecting passengers' repurchase intentions on city bus: A case of the Taipei metropolitan area," Transportation, Springer, vol. 30(3), pages 307-327, August.
    11. Nils Herger, 2013. "On Discrete Location Choice Models," Working Papers 13.02, Swiss National Bank, Study Center Gerzensee.
    12. Herger, Nils & McCorriston, Steve, 2013. "On discrete location choice models," Economics Letters, Elsevier, vol. 120(2), pages 288-291.
    13. Danis, Michelle A. & Pennington-Cross, Anthony, 2008. "The delinquency of subprime mortgages," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 67-90.
    14. Celestino Suárez-Burgnet & Inmaculada Martínez-Zarzoso & Laura Márquez-Ramos, . "Determinants of regional integration agreements in a discrete choice framework: Re-Examining the evidence," Working Papers on International Economics and Finance 05-10, FEDEA.
    15. Wen, Chieh-Hua & Koppelman, Frank S., 2001. "The generalized nested logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 627-641, August.
    16. Florian Heiss, 2002. "Structural choice analysis with nested logit models," Stata Journal, StataCorp LP, vol. 2(3), pages 227-252, August.
    17. Ravibabu, M., 2013. "A nested logit model of mode choice for inland movement of export shipments: A case study of containerised export cargo from India," Research in Transportation Economics, Elsevier, vol. 38(1), pages 91-100.
    18. Newman, Jeffrey P., 2008. "Normalization of network generalized extreme value models," Transportation Research Part B: Methodological, Elsevier, vol. 42(10), pages 958-969, December.

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