Resource title

Estimation with the nested logit model: specifications and software particularities

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Resource description

Due to its ability to allow and account for similarities between pairs of alternatives, the nested logit model is increasingly used in practical applications. However the fact that there are two different specifications of the nested logit model has not received adequate attention. The utility maximization nested logit (UMNL) model and the non-normalized nested logit (NNNL) model have different properties, influencing the estimation results in a different manner. As the NNNL specification is not consistent with random utility theory (RUT), the UMNL form is preferred. This article introduces distinct specifications of the nested logit model and indicates particularities arising from model estimation. Additionally, it demonstrates the performance of simulation studies with the nested logit model. In simulation studies with the nested logit model using NNNL software (e. g. PROC MDC in SAS), it must be pointed out that the simulation of the utility function's error terms needs to assume RUT-conformity. But as the NNNL specification is not consistent with RUT, the input parameters cannot be reproduced without imposing restrictions. The effects of using various software packages on the estimation results of a nested logit model are shown on the basis of a simulation study.

Resource author

Nadja Silberhorn, Yasemin Boztu─č, Lutz Hildebrandt

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Resource language

eng

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text/html

Resource resource URL

http://hdl.handle.net/10419/25100

Resource license

Adapt according to the presented license agreement and reference the original author.