The Logit Model in Economics

This paper reviews aspects of the application of logit models in economics. We consider some economic models that lead to a simple or a multinomial logit specification. A detailed account is given of the possible specifications of the multinomial model. We stress the relationship between distributional assumptions and functional form assumptions. Some (mis)specification tests with individual data are discussed. Moreover, we present a new test. We also consider grouping of continuously recorded data, and the biases introduced by an inappropriate grouping.