This paper considers specification tests for the multinomial logit model if alternative-specific constants are used to absorb the impact of omitted variables in the deterministic parts of the utilities. It finds that such tests then do not have any power. This implies that such tests have no power to detect violations of IIA, but only for specification errors in the deterministic part of the utility function.
# 17-068/VIII (2017-07-27)
- Jan (J.) Rouwendal, Vrije Universiteit Amsterdam; Tinbergen Institute
- multinomial logit, Hausman-McFadden specification test, nested logit, GEV models, mixed logit
- JEL codes:
- D1, D4