Journal Article

The Performance of Nested Logit Models When Welfare Estimation Is the Goal

Joseph A. Herriges and Catherine L. Kling

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 79, issue 3, pages 792-802
Published in print August 1997 | ISSN: 0002-9092
Published online August 1997 | e-ISSN: 1467-8276 | DOI: https://dx.doi.org/10.2307/1244421
The Performance of Nested Logit Models When Welfare Estimation Is the Goal

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  • Household Behaviour and Family Economics
  • Econometric Modelling

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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.

Keywords: nested logit; welfare analysis; C510; D120

Journal Article.  0 words. 

Subjects: Household Behaviour and Family Economics ; Econometric Modelling

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