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Estimation with the Nested Logit Model: Specifications and Software Particularities

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Author Info
Nadja Silberhorn
Yasemin Boztug
Lutz Hildebrandt

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Abstract

The paper discusses the nested logit model for choices between a set of mutually exclusive alternatives (e.g. brand choice, strategy decisions, modes of transportation, etc.). Due to the ability of the nested logit model to allow and account for similarities between pairs of alternatives, the model has become very popular for the empirical analysis of choice decisions. However the fact that there are two different specifications of the nested logit model (with different outcomes) 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. This paper introduces distinct specifications of the nested logit model and indicates particularities arising from model estimation. The effects of using various software packages on the estimation results of a nested logit model are shown using simulated data sets for an artificial decision situation.

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Publisher Info
Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-046.

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Length: 34 pages
Date of creation: Aug 2007
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Handle: RePEc:hum:wpaper:sfb649dp2007-046

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Related research
Keywords: nested logit model; utility maximization nested logit; nonnormalized nested logit; simulation study;

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing

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  2. Lydia Mechtenberg, 2006. "Cheap Talk in the Classroom," SFB 649 Discussion Papers SFB649DP2006-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  3. Bruno Deffains & Dominique Demougin, 2006. "Institutional Competition, Political Process and Holdup," SFB 649 Discussion Papers SFB649DP2006-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  4. Dominique Demougin & Anja Schöttner, 2006. "Technological Choice under Organizational Diseconomies of Scale," SFB 649 Discussion Papers SFB649DP2006-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  5. Lydia Mechtenberg & Roland Strausz, 2006. "The Bologna Process: How Student Mobility Affects Multi-Cultural Skills and Educational Quality," SFB 649 Discussion Papers SFB649DP2006-018, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  6. Kai Detlefsen & Wolfgang Härdle, 2006. "Forecasting the Term Structure of Variance Swaps," SFB 649 Discussion Papers SFB649DP2006-052, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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