st: NLogit Degenerate Nests and setting nesting parameters

["Mccann, Laura" <l.mccann@abdn.ac.uk>]

Hi All

I am trying to run a nested model which looks like this:

                                     Debt Source
            _______________|__________________
            |                                |                                      |
PUBLIC DEBT            BANK DEBT                      OTHER PRIVATE DEBT
             |                      ____|___                                |
              |                    |                |                               |
         BONDS       SYND            BILAT                        NBP


Basically my model is as follows:

Companies can choose between issuing 3 types of debt: public debt, bank debt or other private debt. Dependent on choosing either public debt, bank debt or other private debt, firms can choose to issue either bonds, syndicated or bilateral loans, and non-bank private debt respectively as shown on the above hierarchical diagram.

 I want to a) see what type of debt (public v bank v other private debt) a firm would choose based on various firm and loan characteristics (e.g. firm size, age, fixed assets ratio) and then dependent on upon the type of debt that they choose here, what source of debt a firm would choose from that branch based on the same various firm and loan characteristics (e.g. firm size, age, fixed assets ratio).

 I understand that because the public debt branch and the other private debt branch only has one choice that this is a degenerate nest and I need to set a constraint here but I am not sure how to set constraints. Moreover, the software will not allow me to use the same variable more than once in an equation - it says that it is not allowed. Can this issue be addressed? Or does it mean that the same independent variable cannot be used in the two levels of a nested logit model? I have read up on this and I see something regarding nesting parameters but again I am not sure how to deal with this.

Can anyone help me out with how to set up such an equation?

Thanks in advance,

Laura McCann
The University of Aberdeen is a charity registered in Scotland, No SC013683.

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