### Abstract

This paper examines the numerical properties of the nested fixed-point algorithm (NFP) in the estimation of Berry et al. (1995) random coefficient logit demand model. Dubé et al. (2012) find the bound on the errors of the NFP estimates computed by contraction mappings (NFP/CTR) has the order of the square root of the inner loop tolerance. Under our assumptions, we theoretically derive an upper bound on the numerical bias in the NFP/CTR, which has the same order of the inner loop tolerance. We also discuss that, compared with NFP/CTR, NFP using Newton's method has a smaller bound on the estimate error.

Original language | English |
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Pages (from-to) | 67-70 |

Number of pages | 4 |

Journal | Economics Letters |

Volume | 149 |

DOIs | |

Publication status | Published - 2016 Dec 1 |

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### Keywords

- Nested fixed-point algorithm
- Newton's method
- Numerical methods
- Random coefficients logit demand

### ASJC Scopus subject areas

- Finance
- Economics and Econometrics