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Duration dependence and nonparametric heterogeneity: A Monte Carlo study

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  • Baker, Michael
  • Melino, Angelo

Abstract

We examine the behaviour of the nonparametric maximum likelihood estimator (NPMLE) for a discrete duration model with unobserved heterogeneity and unknown duration dependence. We find that a nonparametric specification of either the duration dependence or unobserved heterogeneity, when the other feature of the hazard is known to be absent, leads to estimators that are well behaved even in modestly sized samples. In contrast, there is a large and systematic bias in the parameters of these components when both are specified nonparametrically, as well as a complementary bias in the coefficients on observed heterogeneity. Furthermore, these biases diminish very gradually as sample size increases. We find that a minor modification of the quasilikelihood that penalizes specifications with many points of support leads to a dramatic improvement.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 96 (2000)
Issue (Month): 2 (June)
Pages: 357-393

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Handle: RePEc:eee:econom:v:96:y:2000:i:2:p:357-393

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Web page: http://www.elsevier.com/locate/jeconom

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  1. Michael Baker & Samuel A. Rea, 1998. "Employment Spells And Unemployment Insurance Eligibility Requirements," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 80-94, February.
  2. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  3. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 361-81, Oct.-Dec..
  4. John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
  5. Elbers, Chris & Ridder, Geert, 1982. "True and Spurious Duration Dependence: The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(3), pages 403-09, July.
  6. Hahn, Jinyong, 1994. "The Efficiency Bound of the Mixed Proportional Hazard Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(4), pages 607-29, October.
  7. Sin, Chor-Yiu & White, Halbert, 1996. "Information criteria for selecting possibly misspecified parametric models," Journal of Econometrics, Elsevier, Elsevier, vol. 71(1-2), pages 207-225.
  8. Ridder, Geert, 1990. "The Non-parametric Identification of Generalized Accelerated Failure-Time Models," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 167-81, April.
  9. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 271-320, March.
  10. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, Econometric Society, vol. 47(4), pages 939-56, July.
  11. Gunderson, Morley & Melino, Angelo, 1990. "The Effects of Public Policy on Strike Duration," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 8(3), pages 295-316, July.
  12. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(2), pages 262-333, April.
  13. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1249-66, September.
  14. Huh, Keun & Sickles, Robin C, 1994. "Estimation of the Duration Model by Nonparametric Maximum Likelihood, Maximum Penalized Likelihood, and Probability Simulators," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 683-94, November.
  15. Cosslett, Stephen R, 1983. "Distribution-Free Maximum Likelihood Estimator of the Binary Choice Model," Econometrica, Econometric Society, Econometric Society, vol. 51(3), pages 765-82, May.
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