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On the Equivalence of Location Choice Models: Conditional Logit, Nested Logit and Poisson

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Listed:
  • Kurt Schmidheiny
  • Marius Brülhart

Abstract

It is well understood that the two most popular empirical models of location choice - conditional logit and Poisson - return identical coefficient estimates when the regressors are not individual specific. We show that these two models differ starkly in terms of their implied predictions. The conditional logit model represents a zero-sum world, in which one region's gain is the other regions' loss. In contrast, the Poisson model implies a positive-sum economy, in which one region's gain is no other region's loss. We also show that all intermediate cases can be represented as a nested logit model with a single outside option. The nested logit turns out to be a linear combination of the conditional logit and Poisson models. Conditional logit and Poisson elasticities mark the polar cases and can therefore serve as boundary values in applied research.

Suggested Citation

  • Kurt Schmidheiny & Marius Brülhart, 2009. "On the Equivalence of Location Choice Models: Conditional Logit, Nested Logit and Poisson," CESifo Working Paper Series 2726, CESifo.
  • Handle: RePEc:ces:ceswps:_2726
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    More about this item

    Keywords

    firm location; residential choice; conditional logit; nested logit; Poisson count model;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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