nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2012‒07‒29
three papers chosen by
Philip Yu
Hong Kong University

  1. The Timing of Earnings Sampling over the Life-Cycle and IV Identification of the Return to Schooling By Belzil, Christian; Hansen, Jörgen
  3. Identification and estimation of thresholds in the fixed effects ordered logit model By Gregori Baetschmann

  1. By: Belzil, Christian (Ecole Polytechnique, Paris); Hansen, Jörgen (Concordia University)
    Abstract: We show that within a life-cycle skill accumulation model, IV identification of the return to schooling parameter is either achieved at any point in the life-cycle where the level of skills accumulated beyond school completion for compliers is exactly equal to the post-schooling skill level of non-compliers (the Skill-Equality condition), or when the skill-ratio is equal to the relative population proportions of non-compliers over compliers (the Weighted-Skill-Ratio condition). As a consequence, it is generally impossible to tie IV identification to any specific phase of the life-cycle and there cannot exist a generally acceptable "optimal" age to sample earnings for IV estimation. The practical example developed in the paper shows precisely how an instrument may fulfill identification at a multiplicity of ages, and how different instruments may achieve identification with specific sampling designs and fail to do so with others. Within a life-cycle skill accumulation data generating process, identification of the return to schooling requires not only implicit assumptions about the underlying model, but also assumptions about the validity of the specific age sampling distribution implied by the data.
    Keywords: returns to schooling, instrumental variable methods, dynamic discrete choice, dynamic programming
    JEL: B4 C1 C3
    Date: 2012–07
  2. By: Sigal Kaplan; Yoram Shiftan; Shlomo Bekhor
    Abstract: Spatial choices entailing many alternatives (e.g., residence, trip destination) are typically represented by compensatory models based on utility maximization with exogenous choice set generation, which might lead to incorrect choice sets and hence to biased demand elasticity estimates. Semi-compensatory models show promise in increasing the accuracy of choice set specification by integrating choice set formation within discrete choice models. These models represent a two-stage process consisting of an elimination-based choice set formation upon satisfying criteria thresholds followed by utility-based choice. However, they are subject to simplifying assumptions that impede their application in urban planning. This paper proposes a novel semi-compensatory model that alleviates the simplifying assumptions concerning (i) the number of alternatives, (ii) the representation of choice set formation, and (iii) the error structure. The proposed semi-compensatory model represents a sequence of choice set formation based on the conjunctive heuristic with correlated thresholds, and utility-based choice accommodating alternatively nested substitution patterns across the alternatives and random taste variation across the population. The proposed model is applied to off-campus rental apartment choice of students. The population sample for model estimation consists of 1,893 residential choices from 631 students, who participated in a stated-preference web-based survey of rental apartment choice. The survey comprised a two-stage choice experiment supplemented by a questionnaire, which elicited socio-economic characteristics, attitudes and preferences. During the experiment, respondents searched an apartment dataset by a list of thresholds for pre-defined criteria and then ranked their three most preferred apartments from the resulting choice set. The survey website seamlessly recorded the chosen apartments and their respective thresholds. Results show (i) the estimated model for a realistic universal realm of 200 alternatives, (ii) the representation of correlated threshold as a function of individual characteristics, and (iii) the feasibility and importance of introducing a flexible error structure into semi-compensatory models.
    Date: 2011–09
  3. By: Gregori Baetschmann
    Abstract: The paper proposes a new estimator for the fixed effects ordered logit model. In contrast to existing methods, the new procedure allows estimating the thresholds. The empirical relevance and simplicity of implementation is illustrated in an application to the effect of unemployment on life satisfaction.
    Keywords: Ordered response, panel data, correlated heterogeneity, incidental parameters
    JEL: C23 C25 J28 J64
    Date: 2011–11

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