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Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors

In: Topics in the Economics of Aging

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Author Info

  • Axel Borsch-Supan
  • Vassilis Hajivassiliou
  • Laurence J. Kotlikoff

Abstract

This paper develops a general multiperiod-multinomial probit model for panel data to estimate the living arrangements of the elderly. The model has the following features: (a) In each period choices do not necessarily obey the assumption of independence of irrelevant alternatives. (b) Unobserved person-specific attributes are treated as random effects. These random effects may also be correlated across alternatives. (c) In addition, unobserved choice-specific utility components may persist over some time, creating an autoregressive and/or heteroscedastic error structure. The model is estimated by simulating the choice probabilities in the likelihood function. We examine several variants of the specification of the correlation structure and investigate the extent the biases created by ignoring intertemporal correlations.

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This chapter was published in:

  • David A. Wise, 1992. "Topics in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise92-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7099.

    Handle: RePEc:nbr:nberch:7099

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    1. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
    2. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
    3. Laurence J. Kotlikoff & John N. Morris, 1989. "How Much Care Do the Aged Receive from Their Children? A Bimodal Picture of Contact and Assistance," NBER Chapters, in: The Economics of Aging, pages 151-176 National Bureau of Economic Research, Inc.
    4. V A Hajivassiliou & DL McFadden, 1997. "The Method of Simulated Scores for the Estimation of LDV Models," STICERD - Econometrics Paper Series /1997/328, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
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