nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒09‒05
three papers chosen by
Philip Yu
Hong Kong University

  1. Copula-based bivariate binary response models By Rainer Winkelmann
  2. Structural Estimation and Policy Evaluation in Developing Countries By Petra E. Todd; Kenneth I. Wolpin
  3. Estimating the Employer Switching Costs and Wage Responses of Forward-Looking Engineers By Jeremy T. Fox

  1. By: Rainer Winkelmann (Socioeconomic Institute, University of Zurich)
    Abstract: The bivariate probit model is frequently used for estimating the effect of an endogenous binary regressor on a binary outcome variable. This paper discusses simple modifications that maintain the probit assumption for the marginal distributions while introducing non-normal dependence among the two variables using copulas. Simulation results and evidence from two applications, one on the effect of insurance status on ambulatory expenditure and one on the effect of completing high school on subsequent unemployment, show that these modified bivariate probit models work well in practice, and that they provide a viable and simple alternative to the standard bivariate probit approach.
    Keywords: Bivariate probit, binary endogenous regressor, Frank copula, Clayton copula
    JEL: C23
    Date: 2009–08
  2. By: Petra E. Todd (Department of Economics, University of Pennsylvania); Kenneth I. Wolpin (Department of Economics, University of Pennsylvania)
    Abstract: This paper discusses the use of discrete choice dynamic programming (DCDP) methods for evaluating policies of particular relevance to developing countries, such as policies to reduce child labor and increase school attendance, to improve school quality, to affect immigration flows, to expand old age pension benefits, or to foster small business investment through microfinance. We describe the DCDP framework and how it relates to static models, illustrate its application with an example related to conditional cash transfer programs, consider numerous empirical applications from the literature of how the DCDP methodology has been used to address substantively important policy issues, and discuss methods for model validation.
    Keywords: development economics, policy evaluation, dynamic discrete choice models, schooling, migration
    JEL: J22 C21 H31
    Date: 2009–07–24
  3. By: Jeremy T. Fox
    Abstract: I estimate the relative magnitudes of worker switching costs and how much the employer switching of experienced engineers responds to outside wage offers. Institutional features imply that voluntary turnover dominates switching in the market for Swedish engineers from 1970--1990. I use data on the allocation of engineers across a large fraction of Swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic programming, discrete choice model of voluntary employer choice. The differentiated firms are modeled in employer characteristic space and each firm has its own age-wage profile. I find that a majority of engineers have moderately high switching costs and that a minority of experienced workers are responsive to outside wage offers. Younger workers are more sensitive to outside wage offers than older workers.
    JEL: J21 J23 J29 J31 J33 J42 J44 J61 J62 J63 L0
    Date: 2009–09

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