The CES and the logit: Two related models of heterogeneity |
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| Affiliation: | 1. School of Economics, Sichuan University, No.24 South Section 1, Yihuan Road, Chengdu 610065, China;2. Department of Economics, National University of Singapore, 117570, Singapore;1. Department of Economics and Econometrics, University of Groningen, Netherlands;2. Vrije Universiteit Amsterdam and University of Groningen;3. CEPR, Tinbergen Institute, and the PPSRC Center at IESE, Netherlands;4. Instituto de Análisis Económico (IAE-CSIC) and Barcelona GSE, Spain |
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| Abstract: | The demand system generated from a CES utility function is formally equivalent to the solution of a nested logit model to which the second stage is described by a deterministic Cobb-Douglas utility. On the other hand, the logit demands can be associated with a representative consumer maximizing a deterministic utility of the entropy type. |
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