A Tractable Approach to the Firm Location Decision Problem

Abstract

The conditional logit model based on random utility maximization has provided an adequate framework to model firm location decisions. However, in practice, the implementation of this methodology presents problems when one has to handle complex choice scenarios with a large number of spatial alternatives. We posit the Poisson regression as a tractable solution to these problems. We demonstrate that by taking advantage of an equivalence relation between the likelihood function of the conditional logit and the Poisson regression we can, under certain circumstances, easily estimate a conditional logit model regardless of the number of choices. This insight should be particularly useful for studies of economic location.