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Performance of Nested Logit Models when Welfare Estimation Is the Goal (The)

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  • Herriges, Joseph A.
  • Kling, Catherine L.

Abstract

In this paper we examine the performance of nested logit models in the face of two specification errors. The first specification error arises when a nested logit model is appropriate, but the wrong nesting structure is chosen. The second specification error occurs when the underlying stochastic process is not consistent with nested logit. Particular attention is placed upon the impact that these errors can have on welfare predictions. Monte Carlo experiments are used, together with analytical results, to examine the resulting bias to welfare estimates. In addition, we explore the value of alternative model selection criteria in choosing nesting structures. Key words: nested logit, welfare analysis.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1480.

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Date of creation: 01 Aug 1997
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Publication status: Published in American Journal of Agricultural Economics, August 1997, vol. 79 no. 3, pp. 792-802
Handle: RePEc:isu:genres:1480

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Cited by:
  1. Colombo, Sergio & Hanley, Nicholas & Torres, Cati, 2011. "Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?," Stirling Economics Discussion Papers 2011-02, University of Stirling, Division of Economics.
  2. W. Shaw & Michael Ozog, 1999. "Modeling Overnight Recreation Trip Choice: Application of a Repeated Nested Multinomial Logit Model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 13(4), pages 397-414, June.
  3. Kurt Schwabe & Peter Schuhmann & Roy Boyd & Khosrow Doroodian, 2001. "The Value of Changes in Deer Season Length: An Application of the Nested Multinomial Logit Model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(2), pages 131-147, June.
  4. Blamey, Russell K. & Rolfe, John & Bennett, Jeffrey W. & Morrison, Mark, 2000. "Valuing remnant vegetation in Central Queensland using choice modelling," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(3), September.
  5. Yongjie Ji & Joseph A. Herriges & Catherine L. Kling, 2013. "Modeling Recreation Demand when the Access Point is Unknown," Center for Agricultural and Rural Development (CARD) Publications 13-wp540, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  6. Schwabe, Kurt A. & Schuhmann, Peter W., 1999. "The Value Of Increasing The Length Of Deer Season In Ohio," 1999 Annual meeting, August 8-11, Nashville, TN 21574, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Hanley, Nicholas & Riera, Antoni & Torres, Cati, 2009. "The implications of incorrect utility function specification for welfare measurement in choice experiments," Stirling Economics Discussion Papers 2009-07, University of Stirling, Division of Economics.
  8. John Crooker & Catherine L. Kling, 1998. "Nonparametric Bounds on Welfare Measures: A New Tool for Nonmarket Valuation," Center for Agricultural and Rural Development (CARD) Publications 99-wp208, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  9. Torres, Cati & Hanley, Nick & Riera, Antoni, 2011. "How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 111-121, July.
  10. John Crooker & Joseph Herriges, 2004. "Parametric and Semi-Nonparametric Estimation of Willingness-to-Pay in the Dichotomous Choice Contingent Valuation Framework," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(4), pages 451-480, April.
  11. Yeh, Chia-Yu & Sohngen, Brent & Habb, Timothy, 2001. "Single Versus Multiple Objective Recreation Trips: A Split-Sample Multi-Site Analysis," 2001 Annual meeting, August 5-8, Chicago, IL 20444, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  12. Blamey, R. K. & Bennett, J. W. & Louviere, J. J. & Morrison, M. D. & Rolfe, J., 2000. "A test of policy labels in environmental choice modelling studies," Ecological Economics, Elsevier, vol. 32(2), pages 269-286, February.
  13. R.K. Blamey & J.W. Bennett & J.J. Louviere & M.D. Morrison & J.C. Rolfe, 2002. "Attribute Causality in Environmental Choice Modelling," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(2), pages 167-186, October.

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