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Accounting for Unobserved Heterogeneity in Discrete-time, Discrete-choice Dynamic Microsimulation Models. An application to Labor Supply and Household Formation in Italy

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  • Ambra Poggi
  • Matteo Richiardi

Abstract

This paper analyzes the implications of unobserved heterogeneity in discrete-time, discrete-choice microsimulation models. We compare the predictions coming from simple pooled probit estimates with those obtained using random effect dynamic probit models, in a dynamic microsimulation of household formation and labor supply in Italy. We show that failing to account for unobserved heterogeneity has important quantitative consequences, which are often neglected in empirical microsimulation work.

Suggested Citation

  • Ambra Poggi & Matteo Richiardi, 2012. "Accounting for Unobserved Heterogeneity in Discrete-time, Discrete-choice Dynamic Microsimulation Models. An application to Labor Supply and Household Formation in Italy," LABORatorio R. Revelli Working Papers Series 117, LABORatorio R. Revelli, Centre for Employment Studies.
    • Handle: RePEc:cca:wplabo:117
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    More about this item

    Keywords

    dynamic microsimulation; unobserved heterogeneity; female labor force participation;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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