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Estimation with the Nested Logit Model: Specifications and Software Particularities

Author

Listed:
  • Nadja Silberhorn
  • Yasemin Boztug
  • Lutz Hildebrandt

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.

Suggested Citation

  • Nadja Silberhorn & Yasemin Boztug & Lutz Hildebrandt, 2007. "Estimation with the Nested Logit Model: Specifications and Software Particularities," SFB 649 Discussion Papers SFB649DP2007-046, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    • Handle: RePEc:hum:wpaper:sfb649dp2007-046
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    Cited by:

    1. Paat Rusmevichientong & Zuo-Jun Max Shen & David B. Shmoys, 2010. "Dynamic Assortment Optimization with a Multinomial Logit Choice Model and Capacity Constraint," Operations Research, INFORMS, vol. 58(6), pages 1666-1680, December.
    2. Nalin Kumar Ramaul & Pinki Ramaul, 2018. "Regional Incentives and Location Choice of New Firms in India: A Nested Logit Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 501-525, June.
    3. 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.
    4. 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 47-64, July.
    5. Peter Berck & Sofia Tano & Olle Westerlund, 2016. "Regional Sorting of Human Capital: The Choice of Location among Young Adults in Sweden," Regional Studies, Taylor & Francis Journals, vol. 50(5), pages 757-770, May.
    6. Hackbarth, André & Madlener, Reinhard, 2018. "Combined Vehicle Type and Fuel Type Choices of Private Households: An Empirical Analysis for Germany," FCN Working Papers 17/2018, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised May 2019.

    More about this item

    Keywords

    nested logit model; utility maximization nested logit; nonnormalized nested logit; simulation study;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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