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# st: performing a nested logit model

 From "Kevin Steensma" To Subject st: performing a nested logit model Date Tue, 5 Nov 2002 17:13:49 -0800

```Greetings.  My situation is as follows:  I collected data at time 1 on 150
joint ventures.  At time 2, I observed a four-category outcome -

1)  Goes bankrupt, n=26
2)  remains a joint venture, n=61
3) becomes a foreign owned wholly-owned subsidiary, n=32
4) becomes a locally owned wholly-owned subsidiary, n=31

I conceptualize this as a three-level nested logit model.

1. Do they go bankrupt (n=26), or survive (n=124)?
2. Of those that survive, do they remain a joint venture (n=61), or do they
become a wholly owned subsidiary (n=63)
3. Of those that become a wholly-owned subsidiary, are they foreign owned
(n=32), or locally owned (n=31)

When I run this in LIMDEP using three continuous independent variables, I
get the following:

Error:   803: Hessian is not positive definite at start values.
B0 is too far from solution for Newton method.
Switching to BFGS as a better solution method.
NOTE: Convergence in initial iterations is rarely
at a true function optimum. This may not be a
solution (especially if initial iterations stopped).
Exit from iterative procedure.    1 iterations completed.
Check convergence values shown below.
Gradient value: Tolerance= .1000D-05, current value= .0000D+00
Function chg. : Tolerance= .0000D+00, current value= .0000D+00
Parameters chg: Tolerance= .0000D+00, current value= .0000D+00
Smallest abs. param. change from start value = .0000D+00
At least one parameter did not leave start value.
Normal exit from iterations. Exit status=0.

My questions:

1. Am I expecting too much from my data?  Is nested logit not appropriate?
2. Would STATA have better functionality for nested logit?
3. Could I simply use multinomial logit?  What are the disadvantages?

Any insight would be much appreciated.  Thanks!!

**********************************
H. Kevin Steensma
Associate Professor of Management and Org.
Gerhardt Faculty Fellow
University of Washington
Mackenzie Hall, Box 353200
Seattle, WA  98195
206-543-4897
Fax: 206-685-9392
*********************************

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