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Testing for IIA with the Hausman-McFadden Test

Wim Vijverberg

No 5826, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The Independence of Irrelevant Alternatives assumption inherent in multinomial logit models is most frequently tested with a Hausman-McFadden test. As is confirmed by many findings in the literature, this test sometimes produces negative outcomes, in contradiction of its asymptotic ?² distribution. This problem is caused by the use of an improper variance matrix and may lead to an invalid statistical inference even when the test value is positive. With a correct specification of the variance, the sampling distribution for small samples is indeed close to a ?² distribution.

Keywords: multinomial logit; IIA assumption; Hausman-McFadden test (search for similar items in EconPapers)
JEL-codes: C12 C35 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2011-06
New Economics Papers: this item is included in nep-dcm and nep-ecm
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