Review and assessment of the nested logit model

Abstract

The popular hierarchical or nested logit model that has been the recent source of heated discussions in the literature is reviewed and critically examined. The fundamental underpinnings of the model are first presented in a concise and easy-to-understand fashion and then used to assess each controversy in turn. Monte Carlo simulation is also used to examine some problems that are not possible to address by just resorting to the theory. The main conclusion is that all the model hypotheses are both essential and unambiguous and should not be ignored for a correct use of the model in practice.

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