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The Performance of Nested Logit Models When Welfare Estimation Is the Goal

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  • Joseph A. Herriges
  • Catherine L. Kling

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. Copyright 1997, Oxford University Press.

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  • Joseph A. Herriges & Catherine L. Kling, 1997. "The Performance of Nested Logit Models When Welfare Estimation Is the Goal," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 792-802.
    • Handle: RePEc:oup:ajagec:v:79:y:1997:i:3:p:792-802
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    1. 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.
    2. repec:sss:wpaper:201407 is not listed on IDEAS
    3. Thiene, Mara & Swait, Joffre & Scarpa, Riccardo, 2017. "Choice set formation for outdoor destinations: The role of motivations and preference discrimination in site selection for the management of public expenditures on protected areas," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 152-173.
    4. John Crooker & Joseph Herriges, 2004. "Parametric and Semi-Nonparametric Estimation of Willingness-to-Pay in the Dichotomous Choice Contingent Valuation Framework," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(4), pages 451-480, April.
    5. Herriges, Joseph A. & Phaneuf, Daniel J., 1999. "Controlling for Correlation Across Choice Occasions and Sites in a Repeated Mixed Logit Model of Recreation Demand," Western Region Archives 321717, Western Region - Western Extension Directors Association (WEDA).
    6. Cati Torres & Sergio Colombo & Nick Hanley, 2014. "Incorrectly accounting for preference heterogeneity in choice experiments: what are the implications for welfare measurement?," Discussion Papers in Environment and Development Economics 2014-07, University of St. Andrews, School of Geography and Sustainable Development.
    7. 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).
    8. Crooker, John & Kling, Catherine L., 2000. "Nonparametric Bounds on Welfare Measures: A New Tool for Nonmarket Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 145-161, March.
    9. Catalina M. Torres Figuerola & Nick Hanley & Sergio Colombo, 2011. "Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?," CRE Working Papers (Documents de treball del CRE) 2011/1, Centre de Recerca Econòmica (UIB ·"Sa Nostra").
    10. 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.
    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. Roberto Basile & Davide Castellani & Antonello Zanfei, 2009. "National boundaries and the location of multinational firms in Europe," Papers in Regional Science, Wiley Blackwell, vol. 88(4), pages 733-748, November.
    13. Yongjie Ji & Joseph A. Herriges & Catherine L. Kling, 2016. "Modeling Recreation Demand When the Access Point Is Unknown," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(3), pages 860-880.
    14. 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, Springer;European Association of Environmental and Resource Economists, vol. 19(2), pages 131-147, June.
    15. Catalina M. Torres Figuerola & Nick Hanley & Antoni Riera Font, 2008. "The implications of incorrect utility function specification for welfare measurement in choice experiments," CRE Working Papers (Documents de treball del CRE) 2008/6, Centre de Recerca Econòmica (UIB ·"Sa Nostra").
    16. Smith, V. Kerry & Houtven, George Van & Pattanayak, Subhrendu, 1999. "Improving the Practice of Benefit Transfer: A Preference Calibration Approach," Western Region Archives 321702, Western Region - Western Extension Directors Association (WEDA).
    17. W. Shaw & Michael Ozog, 1999. "Modeling Overnight Recreation Trip Choice: Application of a Repeated Nested Multinomial Logit Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(4), pages 397-414, June.
    18. 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), pages 1-18.
    19. 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, Springer;European Association of Environmental and Resource Economists, vol. 23(2), pages 167-186, October.
    20. Bhattacharjee, Subhra & Kling, Catherine L. & Herriges, Joseph A., 2009. "Kuhn-Tucker Estimation of Recreation Demand – A Study of Temporal Stability," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49408, Agricultural and Applied Economics Association.

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