Performance of Nested Logit Models when Welfare Estimation Is the Goal (The)

Joseph Herriges and Catherine Kling

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: In this paper we examine the performance of nested logit models in the face of two specification errors. The first specification error arises when a nested logit model is appropriate, but the wrong nesting structure is chosen. The second specification error occurs when the underlying stochastic process is not consistent with nested logit. Particular attention is placed upon the impact that these errors can have on welfare predictions. Monte Carlo experiments are used, together with analytical results, to examine the resulting bias to welfare estimates. In addition, we explore the value of alternative model selection criteria in choosing nesting structures. Key words: nested logit, welfare analysis.

Date: 1997-08-01
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Citations: View citations in EconPapers (27)

Published in American Journal of Agricultural Economics, August 1997, vol. 79 no. 3, pp. 792-802

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:1480

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