Specification of the logit model: The case of valuation of nonmarket goods

Abstract

We address the proper specification of the logit model for estimation of nonmarket commodity demand. Economic theory is used to show the conditions which must be met by the logit functional form if it is to yield valid estimates of welfare change measures and demand relationships. An empirical example is used to illustrate the argument. Recreational boating data were collected using the contingent valuation method (CVM) in Texas. In one instance the demand curve is positively sloped due to the specific functional form chosen. The estimated demand curve for the theoretically preferred functional form has the expected negative slope.