On the equivalence of location choice models: Conditional logit, nested logit and Poisson |
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Authors: | Kurt Schmidheiny Marius Brülhart |
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Institution: | a Department of Economics and Business, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain b Département d’économétrie et économie politique, Ecole des HEC, Université de Lausanne, CH-1015 Lausanne, Switzerland |
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Abstract: | It is well understood that the two most popular empirical models of location choice - conditional logit and Poisson - return identical coefficient estimates when the regressors are not individual specific. We show that these two models differ starkly in terms of their implied predictions. The conditional logit model represents a zero-sum world, in which one region’s gain is the other regions’ loss. In contrast, the Poisson model implies a positive-sum economy, in which one region’s gain is no other region’s loss. We also show that all intermediate cases can be represented as a nested logit model with a single outside option. The nested logit turns out to be a linear combination of the conditional logit and Poisson models. Conditional logit and Poisson elasticities mark the polar cases and can therefore serve as boundary values in applied research. |
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Keywords: | C25 R3 H73 H3 |
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