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Demand Estimation with Variable Choice Sets: A Likelihood Correction for Nested Logit

Matthew J. Baker, Lisa M. George

arXiv 11 Sep 2026 · Econometrics

arXiv:2609.12987 · PDF · Extracted main text

Abstract

We derive the exact likelihood of the Berry (1994) share-form nested logit and show it contains a Jacobian term that depends on nest size and the nesting parameter. Omitting the term biases within-nest substitution estimates wherever choice sets vary across markets. Commonly-used count instruments for the within-nest share fail exclusion when product counts enter demand directly. The corrected likelihood identifies substitution without them, making crowding estimable. We apply the estimator to Medicare Advantage plan proliferation after 2019 elimination of the “meaningful difference” requirement. Estimates indicate plan proliferation raised consumer surplus in most markets, but ignoring crowding overstates the gains.

Citation extraction

31
references
48
in-text mentions
31
distinct cited
1
self-citations
14,958
main-text words

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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1Daniel A. Ackerberg and Marc Rysman (2005) Unobserved product differentiation in discrete-choice models: estimating price elasticities and welfare effects1.000123100%
2Steven T. Berry Estimating Discrete-Choice Models of Product Differentiation0.73732100%
3Berry, Steven and Eizenberg, Alon and Waldfogel, Joel (2016) Optimal Product Variety in Radio Markets0.64422100%
4Kodde, David A. and Palm, Franz C (1986) Wald Criteria for Jointly Testing Equality and Inequality Restrictions0.64422100%
5Town, Robert and Liu, Su (2003) The Welfare Impact of Medicare HMOs0.64422100%
6Curto, Vilsa and Einav, Liran and Levin, Jonathan and Bhattacharya,… (2021) Can Health Insurance Competition Work? Evidence from Medicare Advantage0.51121100%
7Yeo, Jungwon and Miller, Daniel P (2018) Estimating Switching Costs with Market Share Data: An Application to Medicare Part D0.40511100%
8Abaluck, Jason and Gruber, Jonathan (2011) Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program0.40511100%
9Afendulis, Christopher C. and Sinaiko, Anna D. and Frank, Richard G (2015) Dominated Choices and Medicare Advantage Enrollment0.40511100%
10Atherly, Adam and Dowd, Bryan E. and Feldman, Roger (2004) The Effect of Benefits, Premiums, and Health Risk on Health Plan Choice in the Medicare Program0.40511100%

Showing the top 10 of 31 scored citations.