DP7379 On the Equivalence of Location Choice Models: Conditional Logit, Nested Logit and Poisson
|Author(s):||Marius Brülhart, Kurt Schmidheiny|
|Publication Date:||July 2009|
|Keyword(s):||conditional logit, firm location, nested logit, Poisson count model, residential choice|
|JEL(s):||C25, H73, R3|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7379|
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.