Abstract
An important and intuitive generalization of the MNL specification is the nested multinomial logit (NMNL) model (McFadden, 1978). This model is able to generate substantial deviations from the “Independence of Irrelevant Alternatives” assumption but retains most of the computational advantages of the MNL model. Because of these features, the NMNL model is presently the most favorable compromise between the ideals of functional flexibility and computational ease. This chapter reviews its microeconomic and econometric foundations in a comprehensive fashion.
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