A Multivariate Model for Multinomial Choices

Koen Bel and Richard Paap

No EI 2014-26, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: __Abstract__ Multinomial choices of individuals are likely to be correlated. Nonetheless, econometric models for this phenomenon are scarce. A problem of multivariate multinomial choice models is that the number of potential outcomes can become very large which makes parameter interpretation and inference difficult. We propose a novel Multivariate Multinomial Logit specification, where (i) the number of parameters stays limited; (ii) there is a clear interpretation of the parameters in terms of odds ratios; (iii) zero restrictions on parameters result in independence between the multinomial choices and; (iv) parameter inference is feasible using a composite likelihood approach even if the multivariate dimension is large. Finally, these nice properties are also valid in a fixed-effects panel version of the model.

Keywords: Discrete Choices; Multivariate analysis; Multinomial Logit; Composite Likelihood (search for similar items in EconPapers)
Pages: 34
Date: 2014-10-13
New Economics Papers: this item is included in nep-dcm and nep-ecm
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