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A tractable approach to the firm location decision problem

Author

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  • Paulo Guimaraes

    () (Universidade do Minho, NIMA)

  • Octavio Figueiredo

    () (CEMPRE, Universidade do Porto)

  • Douglas Woodward

    () (University of South Carolina)

Abstract

The Random Utility Maximization-based conditional logit model has provided an adequate framework to model firm location decisions. However, in practice, the implementation of this methodology presents problems when one has to handle complex choice scenarios with a large number of spatial alternatives. Another weakness of the logit approach is the underlying Independence to Irrelevant Alternatives (IIA) assumption. In this paper, we posit the Poisson regression as a tractable solution to these problems. Actually, the coefficients of the conditional logit model can be equivalently estimated using a Poisson regression. Moreover, by applying the fixed effects Poisson model one can easily and more effectively control for some forms of the potential IIA violations.

Suggested Citation

  • Paulo Guimaraes & Octavio Figueiredo & Douglas Woodward, 2000. "A tractable approach to the firm location decision problem," NIMA Working Papers 2, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  • Handle: RePEc:nim:nimawp:2/2000
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