nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2005‒07‒18
seven papers chosen by
Philip Yu
Hong Kong University

  1. Lines of Credit and Consumption Smoothing: The Choice between Credit Cards and Home Equity Lines of Credit By Shubhasis Dey
  2. Randomized Sign Test for Dependent Observations on Discrete Choice under Risk By Anat Bracha; Jeremy Gray; Rustam Ibragimov; Boaz Nadler; Dmitry Shapiro; Glena Ames; Donald J. Brown
  3. Determinants of entrepreneurial engagement levels in Europe and the US By Roy Thurik; Isabel Grilo
  4. Young and Out: An Application of a Prospects-Based Concept of Social Exclusion By Raaum, Oddbjørn; Rogstad, Jon; Røed, Knut; Westlie, Lars
  5. Low-Wage Employment in Portugal: A Mixed Logit Approach By Carlos Pestana Barros; Isabel Proença; José Cabral Vieira
  6. Location Choice of Multinational Companies in China: Korean and Japanese Companies By Sung Jin Kang,; Hongshik Lee
  7. The Decision to Invest Abroad: The Case of Korean Multinationals By Hongshik Lee

  1. By: Shubhasis Dey
    Abstract: The author models the choice between credit cards and home equity lines of credit (HELOCs) within a framework where consumers hold lines of credit as instruments of consumption smoothing across state and time. Flexible repayment schemes for lines of credit induce risk-averse consumers with sufficiently high discount rates to underinsure and hold lines of credit instead as a buffer, even when they have access to full and fair insurance markets. Weighing the fixed upfront fees and higher default costs of HELOCs against the advantages of low and income-tax-deductible interest payments, the author finds a threshold level of potential borrowing belowwhich consumers prefer to use credit cards exclusively. Above that threshold, consumers decide touse HELOCs and consolidate all outstanding credit card debt into them; however, a rising probability of default and the resulting loss of equity in the home will put an upper bound on the potential HELOC borrowing that will prevent full debt consolidation.
    Keywords: Credit and credit aggregates
    JEL: D1 D81
    Date: 2005
  2. By: Anat Bracha; Jeremy Gray (Dept. of Psychology, Yale University); Rustam Ibragimov; Boaz Nadler (Dept. of Mathematics, Yale University); Dmitry Shapiro; Glena Ames (Cowles Foundation, Yale University); Donald J. Brown (Cowles Foundation, Yale University)
    Abstract: This paper proposes nonparametric statistical procedures for analyzing discrete choice models of affective decision making. We make two contributions to the literature on behavioral economics. Namely, we propose a procedure for eliciting the existence of a Nash equilibrium in an intrapersonal, potential game as well as randomized sign tests for dependent observations on game-theoretic models of affective decision making. This methodology is illustrated in the context of a hypothetical experiment -- the Casino Game.
    Keywords: Behavioral economics, Affective decision making, Intrapersonal potential games, Randomized sign tests, Dependent observations, Adapted sequences, Martingale-difference sequences
    JEL: C12 C32 C35 C72 C91 D11 D81
    Date: 2005–06
  3. By: Roy Thurik; Isabel Grilo
    Abstract: Determinants from different streams of literature and spanning different disciplines are used to explain entrepreneurial decisions. A multinomial logit model and survey data from the old 15 EU member states, Norway, Iceland, Liechtenstein and the US are used to establish the effect of demographic and other variables on various entrepreneurial engagement levels. These engagement levels range from "never thought about starting a business" to "thinking about it", "taking steps for starting up", "having a young business", "having an older business" and "no longer being an entrepreneur". Data of two Entrepreneurship Flash Eurobarometer surveys (2002 and 2003) containing over 20,000 observations are used. Other than demographic variables, the set of explanatory variables used includes the perception by respondents of ad-ministrative complexities, of availability of financial support and of risk tolerance, the respondents' prefer-ence for self-employment and country specific effects. The most striking result is that the perception of lack of financial support has no discriminative effect across the various levels of entrepreneurial engagement.
    Keywords: entrepreneurship, determinants, nascent entrepreneurship, multinomial logit, barriers to entry, Europe
    JEL: M13 H10 J23 R12
    Date: 2005–06
  4. By: Raaum, Oddbjørn (The Ragnar Frisch Centre for Economic Research); Rogstad, Jon (Institute for Social Research); Røed, Knut (The Ragnar Frisch Centre for Economic Research); Westlie, Lars (The Ragnar Frisch Centre for Economic Research)
    Abstract: We develop a forward-looking empirical concept of social exclusion based on the estimated transition probabilities from a random effects multinominal logit-model. Youths are considered socially excluded if they are currently outside school/work and have a low predicted probability of re-entering in the near future. Implemented on extraordinary rich event history data of compulsory school graduates, we estimate social exclusion among Norwegian youths and find that social exclusion is (i) non-cyclical; (ii) rare among teen-agers, except for immigrant children and individuals with a disadvantaged family background; (iii) more prevalent among young adults in their early twenties; and (iv) independent of gender
    Keywords: social exclusion; multinominal logit-model; Youths;
    JEL: I29
    Date: 2005–05–30
  5. By: Carlos Pestana Barros (Technical University of Lisbon); Isabel Proença (Technical University of Lisbon); José Cabral Vieira (University of the Azores and IZA Bonn)
    Abstract: In this paper, we examine the determinants of low-wage employment in Portugal. For this purpose, we use a data file of the European Community Household Panel (ECHP) for the years 1998 and 1999. In order to take into account unobserved heterogeneity in the data, a random-parameter logit model is used to analyse the probability of a worker receiving a low wage. The results indicate that the consideration that the effects of the explanatory variables are the same across all individuals, such as is assumed in most of the literature may be misleading. From the policy perspective, this implies that the use of a single instrument in order to combat low-wage employment is inappropriate to satisfy the whole population. In view of this, policies tailored by clusters would be more appropriate.
    Keywords: low-wage employment, random-parameter logit model, public policy
    JEL: C25 J31 J38
    Date: 2005–07
  6. By: Sung Jin Kang, (Korea University); Hongshik Lee (Korea Institute for Internation Economic Policy)
    Abstract: By using aggregate and firm level data of Korean and Japanese forign affiliates in Chin, we investigate the recent FDI trends and the determinants of location choice. The comparison of the FDI trends of Japanese and Korean companies show that Korean companies are concentrated into China, especially in three regions of northeast of China. The conditional logit estimation results differ between Korean and Japanese companies. Even though agglomeration variable is shown to be positive and significant for two countries, regional income is shown to be positive for Japan but negative for Korea. For Korean companies, the college graduate, the railway variables and trade share are shown to be positive and significant but other variables such as the number of economic zones and the share of production are shown to be negative. In addition, the distance from Korea and the ethnicity factor might play more significant role sin FDI decisions as well. Thus, we can interpret that the main determinants such as agglomeration, vertical, horizontal FDI and infrastructure variables play significant roles in explaining recent FDI location. However, explanatory power of those variables above for location decision of Japanese companies is not significant.
    Keywords: location choice, multinationals, agglomeration, conditional logit
    JEL: F11 F12
    Date: 2004–12
  7. By: Hongshik Lee (Korea Institute of International Economic Policy)
    Abstract: Recent firm-based empirical studies find that firms that serve foreign markets either through exports or foreign direct investment (FDI) are more efficient than their domestically orientated counterparts. However, recent empirical literature attributes these differences to only exports. The purpose of this paper is to extend some recent works to study the link between firm performance of multinationals and choice to participate in the foreign investment. In so doing, this paper explicitly differentiates exports and FDI decisions.
    Keywords: Export, FDI, Self-selection, Dynamic Choice model, learning-by doing
    JEL: F14 F15 F23
    Date: 2003–12

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