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A Monte Carlo study on non-parametric estimation of duration models with unobserved heterogeneity

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  • Zhang, Tao

    ()
    (The Ragnar Frisch Centre for Economic Research)

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    Abstract

    We conduct extensive Monte Carlo experiments on non-parametric estimations of duration models with unknown duration dependence and unknown mixing distribution for unobserved heterogeneity. We propose a full non-parametric maximum likelihood approach, based on time-varying lagged explanatory covariates from observational data. By utilising this data-based identification source, we find that both duration dependence and unobserved heterogeneity can be reliably estimated. Our Monte Carlo evidences show that variation in time-varying lagged explanatory variables contributes to the identification of both duration dependence and unobserved heterogeneity, especially when sample sizes are limited. For limited sample sizes, maximum penalised likelihood with information criteria seems to produce more accurate estimators than pure maximum likelihood. Our approach can be easily extended to multivariate competing risks model with dependent unobserved heterogeneities.

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-25-2003.pdf
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    Bibliographic Info

    Paper provided by Oslo University, Department of Economics in its series Memorandum with number 25/2003.

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    Length: 89 pages
    Date of creation: 01 Dec 2003
    Date of revision:
    Handle: RePEc:hhs:osloec:2003_025

    Contact details of provider:
    Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
    Phone: 22 85 51 27
    Fax: 22 85 50 35
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    Web page: http://www.oekonomi.uio.no/indexe.html
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    Related research

    Keywords: duration dependence; unobserved heterogeneity; non-parametric estimation; Monte Carlo study; time-varying covariates;

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    References

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    1. Brinch,C., 2000. "Identification of structural duration dependence and unobserved heterogeneity with time-varying," Memorandum 20/2000, Oslo University, Department of Economics.
    2. McCall, B.P., 1992. "The Identifiability of the Mixed non-Proportional Hazards Models," Papers 92-16, Minnesota - Industrial Relations Center.
    3. McCall, Brian P., 1996. "The Identifiability of the Mixed Proportional Hazards Model with Time-Varying Coefficients," Econometric Theory, Cambridge University Press, vol. 12(04), pages 733-738, October.
    4. Michael Baker & Angelo Melino, 1999. "Duration Dependence and Nonparametric Heterogeneity: A Monte Carlo Study," Working Papers melino-99-01, University of Toronto, Department of Economics.
    5. Abbring, Jaap H & van den Berg, Gerard J, 2007. "The Unobserved Heterogeneity Distribution in Duration Analysis," CEPR Discussion Papers 6219, C.E.P.R. Discussion Papers.
    6. Gaure, Simen & Røed, Knut, 2003. "How Tight is the Labour Market? A Micro-Based Macro Indicator," Memorandum 09/2003, Oslo University, Department of Economics.
    7. Elbers, Chris & Ridder, Geert, 1982. "True and Spurious Duration Dependence: The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 403-09, July.
    8. repec:cup:etheor:v:12:y:1996:i:4:p:733-38 is not listed on IDEAS
    9. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
    10. Joel L. Horowitz, 1999. "Semiparametric Estimation of a Proportional Hazard Model with Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 67(5), pages 1001-1028, September.
    11. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    12. Rafael Lalive & Jan C. van Ours & Josef Zweimueller, . "The Impact of Active Labor Market Programs on the Duration of Unemployment," IEW - Working Papers 041, Institute for Empirical Research in Economics - University of Zurich.
    13. McCall, B.P., 1992. "The Non-parametric Identifiability of a Competing Risks Model with Regressors," Papers 92-01, Minnesota - Industrial Relations Center.
    14. Richardson, Katarina & van den Berg, Gerard J., 2002. "The effect of vocational employment training on the individual transition rate from unemployment to work," Working Paper Series 2002:8, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    15. 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.
    16. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    17. Lancaster, Tony, 1985. "Generalised residuals and heterogeneous duration models : With applications to the Weilbull model," Journal of Econometrics, Elsevier, vol. 28(1), pages 155-169, April.
    18. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
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    Cited by:
    1. P�l B�ring, 2010. "Gamma Unobserved Heterogeneity and Duration Bias," Econometric Reviews, Taylor & Francis Journals, vol. 29(1), pages 1-19.
    2. Ott Toomet, 2005. "Does an increase in unemployment income lead to longer unemployment spells? Evidence using Danish unemployment assistance data," Economics Working Papers 2005-07, School of Economics and Management, University of Aarhus.
    3. repec:ese:iserwp:2006-53 is not listed on IDEAS
    4. Ott-Siim Toomet, 2005. "Does an Increase in Unemployment Income Lead to Longer Unemployment Spells? Evidence Using Danish Unemployment Assistance Data," Bank of Estonia Working Papers 2005-09, Bank of Estonia, revised 10 Oct 2005.
    5. Concetta Rondinelli & Cheti Nicoletti, 2009. "The (mis)specification of discrete duration models with unobserved heterogeneity: a Monte Carlo study," Temi di discussione (Economic working papers) 705, Bank of Italy, Economic Research and International Relations Area.

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