nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2016‒02‒17
fourteen papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Latent characteristics and preferences for income redistribution By Pfarr, Christian; Schmid, Andreas; Mørkbak, Morten Raun
  2. Violations of scale compatibility: results from pricing tasks and choice tasks in choice experiments By Merk, Christine; Rehdanz, Katrin; Schmidt, Ulrich; Schröder, Carsten
  3. Do elderly choose nursing homes by quality, price or location? By Stroka, Magdalena; Schmitz, Hendrik
  4. An Unfulfilled Promise? Higher Education Quality and Professional Underemployment in Peru By Yamada, Gustavo; Lavado, Pablo; Martínez, Joan J.
  5. A Generalized Two-Part Model for Fractional Response Variables with Excess Zeros By Schwiebert, Jörg; Wagner, Joachim
  6. Determining global currency bloc equilibria By Fischer, Christoph
  7. Flexible Modeling of Binary Data Using the Log-Burr Link By Kaeding, Matthias
  8. The Preference Survey Module: A Validated Instrument for Measuring Risk, Time, and Social Preferences By Falk, Armin; Becker, Anke; Dohmen, Thomas; Huffman, David B.; Sunde, Uwe
  9. Do stringent environmental policies deter FDI? M&A versus Greenfi eld By Bialek, Sylwia; Weichenrieder, Alfons J.
  10. Forecasting Euro Area Recessions in real-time with a mixed-frequency Bayesian VAR By Pirschel, Inske
  11. Different Reference Points: Tax Planning of Married Couples in East and West Germany By Erbe, Katharina
  12. The Role of Toeholds and Capital Gain Taxes for Corporate Acquisition Strategies By Stimmelmayr, Michael; Liberini, Federica; Russo, Antonio
  13. Subjective Well-being in China, 2005-2010: The Role of Relative Income, Gender and Location By Asadullah, Niaz; Xiao, Saizi; Yeoh, Emile Kok-Kheng
  14. Earnings prospects for low-paid workers higher than for the unemployed but only in high-pay areas with high unemployment By Plum, Alexander; Knies, Gundi

  1. By: Pfarr, Christian; Schmid, Andreas; Mørkbak, Morten Raun
    Abstract: Due to reasons such as the capacity to govern and social stability a good understanding of citizens preferences and their informal coalitions is extremely important. Because preferences for redistribution are difficult to measure identification of latent subgroups becomes non-trivial. Moreover, these groups may be determined by latent characteristics, which increase the identification problem even further. The aim of this study is to identify such groups in the context of preferences for redistribution, by adopting an inductive approach. The data for the estimation of the Willingness-To-Pay values is generated by a decision task, based on a representative sample of 1,538 German individuals. To identify the latent subgroups we investigate to which extent respondents can be grouped using latent class models thereby accounting for both observable and unobservable heterogeneity within the society. Based on the econometric analysis we can identify six social interest groups that differ regarding their preferences for redistribution and their composition. Preference regarding the overall budget for redistribution as well as regarding the different recipient groups are plausible within the political setting in Germany. This also goes for the socio-demographic determinants for group membership, which moreover match well with the current political situation in Germany.
    JEL: C93 D31 D72
    Date: 2015
  2. By: Merk, Christine; Rehdanz, Katrin; Schmidt, Ulrich; Schröder, Carsten
    Abstract: According to rational choice theory, preference orderings should be invariant with respect to the elicitation procedure. The contingent trade-off model (Tversky et al., 1988), however, argues that if an attribute of decision alterna-tives is also used as response mode (scale compatibility), then the attribute will be weighted more heavily. We propose a two-stage design for a systemat-ic assessment of how scale compatibility impacts willingness to pay (WTP) es-timates in choice experiments. At the first stage, a pricing task is implemented. Respondents face two alternative goods. For one good, the price is given. For the alternative good, respondents state the price (WTP) that makes them indifferent between the alternatives. In the second stage, a choice task is implemented: another group of respondents makes pairwise choices between two alternative goods with the price being one of several attributes. Our empirical findings support the contingent trade-off model, as pricing tasks yield systematically lower WTP estimates than choice tasks. While the trade-offs between the other attributes do not differ between the pricing and the choice task. Thus, in the choice task the weight shifts away from the price attribute but does not change the relative weight of the other attributes.
    JEL: D10 D60 Q50
    Date: 2015
  3. By: Stroka, Magdalena; Schmitz, Hendrik
    Abstract: Quality report cards addressing information asymmetry in the health care market have become a popular strategy used by policymakers to improve the quality of care for elderly. Using individual level data from the largest German sickness fund merged with institutional level data, we examine the relationship between nursing home quality, as measured by recently introduced report cards, nursing home prices, nursing home s location and the individual choice of nursing homes. Report cards were stepwise introduced as of 2009 and we use a sample of 2010 that includes both homes that had been evaluated at that time and that had not yet been. Thus, we can distinguish between institutions with good and bad ratings as well as non-rated nursing homes. We find that the probability of choosing a nursing home decreases in distance and price. However, we find no significant effect of reported quality on individuals choice of nursing homes.
    JEL: I10 I11 I19
    Date: 2015
  4. By: Yamada, Gustavo (Universidad del Pacifico); Lavado, Pablo (Universidad del Pacifico); Martínez, Joan J. (Universidad del Pacifico)
    Abstract: Despite the high growth of the Peruvian economy during the last decade, college graduates are facing increasing difficulties to find occupations that match their higher educational background, skills and educational investments. This scenario is embodied in the "professional underemployment" condition by which 4 out of 10 college graduates, by 2012, are overeducated, occupying non-professional and sub-paid positions. We propose that the deterioration in higher education quality has been a trigger for the increase in underemployment of university graduates, as an alternative to the literature that analyzes its causes related to labor demand. The main objective is to explore and quantify the extent to which higher education quality contributes to professional underemployment in Peru. Using data from the National Household Survey for the period 2004-2012 and the National University Census for the years 1996 and 2010, we propose a discrete choice model that measures the impact of college quality on the individual condition of underemployment in the long run. The source of variability for identifying this effect is the institutional and legal process of deregulation of universities initiated in the nineties. Our results indicate that the probability of being underemployed among graduates who attended "lower quality" universities increased from 0.19 to 0.30 beginning the college market deregulation. These estimation consider a twofold effect of deregulation, over the quality of university to which university applicants are prone to attend and in the probability of acquiring university education among individuals with lower academic skills.
    Keywords: discrete choice models, employment determination, occupational choice, human capital, professional labor markets and occupation, unemployment
    JEL: C21 J23 J24 J44 J64
    Date: 2015–12
  5. By: Schwiebert, Jörg; Wagner, Joachim
    Abstract: The fractional probit (or fractional logit) model is used when the outcome variable is a fractional response variable, i.e. a variable taking a value between zero and one. In case of excess zeros, the fractional probit model might not be the optimal modeling device since this model does not predict zeros. As a solution, the two-part model has been proposed, which assumes different processes for having a (non-)zero outcome and, conditionally on having a non-zero outcome, the actual outcome. However, the two-part model assumes independence of these processes. This paper proposes a generalization of the two-part model which allows for dependence of these processes and which also nests the two-part model as a special case. A simulation study indicates that the proposed estimator performs well in finite samples. Two empirical examples illustrate that the model proposed in this paper improves upon the fractional probit and two-part model in terms of model fit and also leads to different marginal effects.
    JEL: C25 C35 C51
    Date: 2015
  6. By: Fischer, Christoph
    Abstract: The study presents an empirical strategy for determining global currency bloc equilibria. The procedure includes, first, a nested logit estimation of the combined determinants of currency regime and anchor currency choice; second, a test for a welfare-maximising regime decision, in which estimates of the relative welfare of alternative regimes are inferred from the results of the first step estimation; third, taking the path dependency of regime choice into account, a currency bloc equilibrium is derived. In equilibrium, the dollar bloc is somewhat smaller and the euro bloc larger than at present. Counterfactual exercises assess among others the potential for a renminbi bloc.
    JEL: F02 F31 F33
    Date: 2015
  7. By: Kaeding, Matthias
    Abstract: Popular link functions often fit skewed binary data poorly. We propose the log-Burr link as flexible alternative. The link nests the complementary-log-log and logit link as special cases, determined by a shape parameter which can be estimated from the data. Shrinkage priors are used for the shape parameter, furthermore the parameter is allowed to vary between subgroups for clustered data. For modeling of nonlinear effects basis function expansions are used. Inference is done in a fully Bayesian framework. Posterior simulation is done via the No-U-Turn sampler implemented in Stan, avoiding convergence problems of the Gibbs sampler and allowing for easy use of nonconjugate priors. Regression coefficients associated with basis functions are reparameterized as random effects to speed up convergence. The proposed methods and the effect of misspecification of the modeled dgp are investigated in a simulation study. The approach is applied on large scale unemployment data.
    JEL: C10 C11 C63
    Date: 2015
  8. By: Falk, Armin (University of Bonn); Becker, Anke (University of Bonn); Dohmen, Thomas (University of Bonn); Huffman, David B. (University of Pittsburgh); Sunde, Uwe (University of Munich)
    Abstract: This paper presents an experimentally validated survey module to measure six key economic preferences – risk aversion, discounting, trust, altruism, positive and negative reciprocity – in a reliable, parsimonious and cost-effective way. The survey instruments included in the module were the best predictors of preferences revealed in incentivized choice experiments. We also offer a streamlined version of the module that has been optimized and piloted for applications where time efficiency and simplicity are paramount, such as international telephone surveys.
    Keywords: survey validation, experiment, preference measurement
    JEL: C81 C83 C90
    Date: 2016–01
  9. By: Bialek, Sylwia; Weichenrieder, Alfons J.
    Abstract: This study examines how environmental stringency affects the location decision of foreign direct investments. We analyze a fi rm-level data set on German outbound FDI and innovate on previous studies by controlling for the mode of entry and applying a mixed-logit analysis. The results show that Greenfi eld projects react to environmental regulation in a strongly different way than M&As. We fi nd robust support for pollution haven hypothesis for polluting Green fields. M&A investments in low polluting industries, on the other hand, seem to be attracted by stricter environmental regulation. We introduce a novel instrumental variable for environmental stringency and apply it to verify the results.
    JEL: Q50 F20 Q58
    Date: 2015
  10. By: Pirschel, Inske
    Abstract: In this paper I use the predictive distribution of the back-, now- and forecasts obtained with a mixed-frequency Bayesian VAR (MF-BVAR) to provide a real-time assessment of the probability of a recession in the euro area for the period from 2003 until 2013. Using a dataset that consists of 135 monthly data vintages and covers 11 soft and hard monthly indicators as well as quarterly real GDP, I show that the MF-BVAR is able to capture current economic conditions extremely well. For both recession periods in the sample, the Great Recession of 2008/2009 and the European debt crisis 2011/2013, the MF-BVAR real-time recession probabilities soar right at the onset of the pending slump of GDP growth. By contrast a BVAR estimated on quarterly data detects both recessions with a substantial delay. While typically non-linear discrete-choice or regime switching models have to be used to predict rare events such as recessions, my results indicate that the MF-BVAR can not only compete with other nowcasting approaches in terms of the accuracy of point forecasts, but also reliably detect rare events through the corresponding predictive distribution which is easily available as a by-product of the estimation procedure.
    JEL: C53 E32 E37
    Date: 2015
  11. By: Erbe, Katharina
    Abstract: This study evaluates the tax planning behavior of married couples with regard to the allocation of tax schedules between spouses in the context of the German income tax splitting. The focus lies on the disparities between East and West German couples. The assumption is that the tax planning behavior of married couples in Germany depends on different reference points referring to the theory by Tversky and Kahneman (1991). The analysis utilizes administrative data from statistics on German income tax returns for the year 2004 (FAST 2004). The result of an alternative specific conditional logit estimation indicates that West German couples are substantially more likely to choose different tax schedules than East Germans (between 17.6 and 19.1 percentage points). West Germans are more likely to allocate the advantageous tax bracket to the husband instead of the wife. Further logit and OLS estimations as well as a Blinder-Oaxaca decomposition support these findings. The conclusion of this analysis is that tax planning behavior of married couples is influenced by the differences in the socialization of people, caused by the fact that before 1990, East Germany had different tax institutions and political regimes compared to West Germany.
    JEL: H24 H31 H20
    Date: 2015
  12. By: Stimmelmayr, Michael; Liberini, Federica; Russo, Antonio
    Abstract: Ownership takeovers often follow complex strategies where the control of the target firm is acquired through a sequence of independent contracts. We study the role of capital gain taxes on the contract structure and on the method of finance of merger and acquisitions (M&As). We find that capital gain taxes discourage cash-to-stock transactions and that this effect is stronger in sequential acquisitions. In addition, we show that capital gain taxes promote sequential acquisitions and thus carry a beneficial welfare effect by avoiding the waste of productive resources due to unprofitable mergers. We provide empirical support for the model predictions by estimating a bivariate probit on a sample of acquisition contracts collected from the Thomson Financial SDC database.
    JEL: G34 H25 C35
    Date: 2015
  13. By: Asadullah, Niaz (University of Malaya); Xiao, Saizi (University of Malaya); Yeoh, Emile Kok-Kheng (University of Malaya)
    Abstract: We use data from two rounds of the Chinese General Social Survey (CGSS) to study the determinants of subjective well-being in China over the period 2005-2010 during which self-reported happiness scores show an increase across all income groups. Ordered probit regression analysis of well-being reveals large influence of gender, rural residency and household income. After controlling for demographic attributes, health, unemployment status, household size, agricultural hukou (household registration identity) and education status, household assets, the influence of past and future income and province dummies, we find that women, urban residents and people with higher income are happier in China. More schooling, better health and being employed are positively and significantly correlated with well-being. Sub-sample s reveals that the rich only care about relative income whereas the effect of absolute income dominates in case of the poorer section. The influence of absolute income is larger among women compared to men and in turn explains why women, despite being poorer, are happier in China, conditional on socio-economic differences. On the other hand, rural residents are poorer than urban residents so that conditional on having the same income, there is no rural-urban happiness gap. Our results suggest that while further decline in poverty will enhance well-being in China, policies that reduce rural-urban and gender inequalities are also likely to boost well-being.
    Keywords: gender, happiness, inequality, poverty, unemployment, well-being
    JEL: O12 I30 I31
    Date: 2016–01
  14. By: Plum, Alexander; Knies, Gundi
    Abstract: There is considerable debate on whether the prospects of entering a high-paid job are better for those in low-paid jobs compared to the unemployed. Whilst some scholars argue that there is a scarring effect of unemployment others highlight that low pay might signal a low productivity and furthermore reduce the time searching for a better paid job. Using longitudinal data for working age men in England matched with local labor market indicators, we estimate several random-effects probit models and find no difference in the probability of becoming high-paid employed between low-paid workers and the unemployed in areas with low unemployment. However, in areas with high unemployment and high pay, low-paid workers have a higher probability of entering high-paid employment than the unemployed. Moreover, there is a penalty for low-wage workers compared to the unemployed in low-pay areas in their probability of entering high-paid employment.
    JEL: J64 J62 J31
    Date: 2015

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