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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.

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Bibliographic Info

Paper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 117.

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Date of creation: 2012
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Handle: RePEc:cca:wplabo:117

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Keywords: dynamic microsimulation; unobserved heterogeneity; female labor force participation;

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  1. Anxo, Dominique & Flood, Lennart & Mencarini, Letizia & Pailhé, Ariane & Solaz, Anne & Tanturri, Maria Letizia, 2007. "Time Allocation between Work and Family over the Life-Cycle: A Comparative Gender Analysis of Italy, France, Sweden and the United States," IZA Discussion Papers 3193, Institute for the Study of Labor (IZA).
  2. J.S. Cramer, 2005. "Omitted Variables and Misspecified Disturbances in the Logit Model," Tinbergen Institute Discussion Papers 05-084/4, Tinbergen Institute.
  3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  4. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  5. Massimiliano Bratti & Emilia Del Bono & Daniela Vuri, 2005. "New Mothers' Labour Force Participation in Italy: The Role of Job Characteristics," LABOUR, CEIS, vol. 19(s1), pages 79-121, December.
  6. Carro, Jesus M., 2007. "Estimating dynamic panel data discrete choice models with fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 503-528, October.
  7. Yatchew, Adonis & Griliches, Zvi, 1985. "Specification Error in Probit Models," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 134-39, February.
  8. Hahn, Jinyong, 1999. "How informative is the initial condition in the dynamic panel model with fixed effects?," Journal of Econometrics, Elsevier, vol. 93(2), pages 309-326, December.
  9. Piero Casadio & Martina Lo Conte & Andrea Neri, 2008. "Balancing work and family in Italy: New mothersÂ’ employment decisions after childbirth," Temi di discussione (Economic working papers) 684, Bank of Italy, Economic Research and International Relations Area.
  10. Concetta Rondinelli & Roberta Zizza, 2010. "(Non)persistent effects of fertility on female labour supply," Temi di discussione (Economic working papers) 783, Bank of Italy, Economic Research and International Relations Area.
  11. Stefan Hoderlein & Enno Mammen & Kyusang Yu, 2011. "Non‐parametric models in binary choice fixed effects panel data," Econometrics Journal, Royal Economic Society, vol. 14(3), pages 351-367, October.
  12. Honore, Bo E., 1993. "Orthogonality conditions for Tobit models with fixed effects and lagged dependent variables," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 35-61, September.
  13. Pacifico, Daniele, 2009. "Modelling Unobserved Heterogeneity in Discrete Choice Models of Labour Supply," MPRA Paper 19030, University Library of Munich, Germany.
  14. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  15. repec:ese:iserwp:2011-04 is not listed on IDEAS
  16. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
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