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Specification Tests for The Multinomial Logit Model Revisited: The Role of Alternative-Specific Constants

Author

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  • Jan (J.) Rouwendal

    (Vrije Universiteit Amsterdam; Tinbergen Institute)

Abstract

This paper shows that Hausman-McFadden and related tests for the multinomial logit model are not informative about failure of IIA, but only about specification error in the deterministic part of the utilities attached to choice alternatives. It is shown that the multinomial logit cannot be distinguished from any more general additive random utility model when a full set of alternative specific constants is present. Estimation of such more general models only addresses specification error in the deterministic parts of the utilities and is not informative about the true specification of the random terms of the utilities.

Suggested Citation

  • Jan (J.) Rouwendal, 2017. "Specification Tests for The Multinomial Logit Model Revisited: The Role of Alternative-Specific Constants," Tinbergen Institute Discussion Papers 17-068/VIII, Tinbergen Institute, revised 29 Jan 2018.
    • Handle: RePEc:tin:wpaper:20170068
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    References listed on IDEAS

    as
    1. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-1240, September.
    2. Fosgerau, Mogens & Mabit, Stefan L., 2013. "Easy and flexible mixture distributions," Economics Letters, Elsevier, vol. 120(2), pages 206-210.
    3. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Obbey Elamin & Len Gill & Martyn Andrews, 2020. "Insights from kernel conditional-probability estimates into female labour force participation decision in the UK," Empirical Economics, Springer, vol. 58(6), pages 2981-3006, June.
    2. Stefano Mainardi, 2021. "Preference heterogeneity, neighbourhood effects and basic services: logit kernel models for farmers’ climate adaptation in Ethiopia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(5), pages 6869-6912, May.

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    More about this item

    Keywords

    multinomial logit; Hausman-McFadden specification test; nested logit; GEV models; mixed logit;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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