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Networks and Spatial Economics

, Volume 15, Issue 1, pp 89–116 | Cite as

A Logit Model With Endogenous Explanatory Variables and Network Externalities

  • Louis de GrangeEmail author
  • Felipe González
  • Ignacio Vargas
  • Rodrigo Troncoso
Article

Abstract

A novel logit model is presented that explicitly includes endogeneity in explanatory variables whose values depend on individual choice decisions that involve network externalities or social interactions such as those impacting road congestion or public transport comfort and convenience. The proposed specification corrects for this particular type of endogeneity. The model is derived from a linearly constrained maximum entropy optimization problem that incorporates the network externalities or social interactions causing the endogeneity. It is validated through simulations and an application to a case of transport mode choice in a Chilean city using real data.

Keywords

Logit model Endogeneity Bias Network externalities Social interactions Fixed point Maximum entropy 

JEL Codes

C13 C5 C6 R4 

Notes

Acknowledgments

This research was supported by FONDECYT Grant No. 11121199.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Louis de Grange
    • 1
    Email author
  • Felipe González
    • 1
  • Ignacio Vargas
    • 2
  • Rodrigo Troncoso
    • 3
  1. 1.Industrial Engineering DepartmentDiego Portales UniversitySantiagoChile
  2. 2.Department of Civil and Environmental EngineeringMassachusetts Institute of TechnologyCambridgeUSA
  3. 3.Centro de Políticas Públicas (CPP), Facultad de GobiernoUniversidad del DesarrolloSantiagoChile

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