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Estimation with the Nested Logit Model: Specifications and Software Particularities

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  • Nadja Silberhorn
  • Yasemin Boztug
  • Lutz Hildebrandt

Abstract

Due to its ability to allow and account for similarities betweenpairs of alternatives, the nested logit model is increasingly used in practical applications. However the fact that there are two different specifications of the nested logit model has not received adequate attention. The utility maximization nested logit (UMNL) model and the non-normalized nested logit (NNNL) model have different properties, influencing the estimation results in a different manner. As the NNNL specification is not consistent with random utility theory (RUT), the UMNL form is preferred. This article introduces distinct specifications of the nested logit model and indicates particularities arising from model estimation. Additionally, it demonstrates the performance ofsimulation studies with the nested logit model. In simulation studies with the nested logit model using NNNL software (e. g. PROC MDC in SAS(c) ), it must be pointed out that the simulation of the utility function´s error terms needs to assume RUT-conformity. But as the NNNL specification is not consistent with RUT, the input parameters cannot be reproduced without imposing restrictions. The effects of using various software packages on the estimation results of a nested logit model are shown on the basis of a simulation study.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-017.

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Length: 35 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-017

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Keywords: nested logit model; utility maximization nested logit; non-normalized nested logit; simulation study;

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Cited by:
  1. Nga Ndjobo, Patrick Marie & Abessolo, Yves André, 2013. "The Impact of Education on the Behaviour of Labor Supply in Cameroon: an Analysis using the Nested Multinomial Logit Model," MPRA Paper 51158, University Library of Munich, Germany.
  2. Philip H. Brown & Caroline Theoharides, 2009. "Health‐seeking behavior and hospital choice in China's New Cooperative Medical System," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages S47-S64, July.

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