Testing the Sequential Logit Model Against the Nested Logit Model

In this paper, we show that the sequential logit (SL) model, in which a choice process is characterized as a sequence of independent multinomial logit models, is a limiting case of the nested logit (NL) model. For testing the SL model against the NL model, we propose using the Wald, likelihood ratio and Lagrange multiplier tests after suitably reparameterizing the NL model. Small sample properties of these tests are examined by Monte Carlo experiment. It is found that when NL model parameters are quot;weakly identifiedquot;, the Wald test severely under-rejects the true model while the sizes of LR and LM tests are not much affected. These tests are applied to the analysis of female labor supply data as an illustrative empirical example