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State Dependence and Heterogeneity in Health Using a Bias Corrected Fixed Effects Estimator

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  • Jesus M. Carro
  • Alejandra Traferri

Abstract

This paper considers the estimation of a dynamic ordered probit of self-assessed health status with two fixed effects: one in the linear index equation and one in the cut points. The two fixed effects allow us to robustly control for heterogeneity in unobserved health status and in reporting behaviour, even though we can not separate both sources of heterogeneity. The contributions of this paper are twofold. First it contributes to the literature that studies the determinants and dynamics of Self-Assessed Health measures. Second, this paper contributes to the recent literature on bias correction in nonlinear panel data models with fixed effects by applying and studying the finite sample properties of two of the existing proposals to our model. The most direct and easily applicable correction to our model is not the best one, and has important biases in our sample sizes.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 402.

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Date of creation: 2011
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Handle: RePEc:ioe:doctra:402

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Keywords: Dynamic ordered probit; fixed effects; self-assessed health; reporting bias; panel data; unobserved heterogeneity; incidental parameters; bias correction;

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References

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  1. Rilstone, Paul & Srivastava, V. K. & Ullah, Aman, 1996. "The second-order bias and mean squared error of nonlinear estimators," Journal of Econometrics, Elsevier, vol. 75(2), pages 369-395, December.
  2. Timothy J Halliday, 2005. "Heterogeneity, State Dependence and Health," Working Papers 200503, University of Hawaii at Manoa, Department of Economics.
  3. Bester, C. Alan & Hansen, Christian, 2009. "A Penalty Function Approach to Bias Reduction in Nonlinear Panel Models with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(2), pages 131-148.
  4. Andrew M. Jones & Stefanie Schurer, 2011. "How does heterogeneity shape the socioeconomic gradient in health satisfaction?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(4), pages 549-579, 06.
  5. Hahn, Jinyong & Kuersteiner, Guido, 2011. "Bias Reduction For Dynamic Nonlinear Panel Models With Fixed Effects," Econometric Theory, Cambridge University Press, vol. 27(06), pages 1152-1191, December.
  6. Paul Contoyannis & Andrew M. Jones & Nigel Rice, 2004. "The dynamics of health in the British Household Panel Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(4), pages 473-503.
  7. Maarten Lindeboom & Eddy van Doorslaer, 2003. "Cut-point Shift and Index Shift in Self-reported Health," Tinbergen Institute Discussion Papers 03-042/3, Tinbergen Institute.
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Cited by:
  1. Cubi-Molla, P. & Jofre-Bonet, M. & Serra-Sastre, V., 2013. "Adaptation to Health States: A Micro-Econometric Approach," Working Papers 13/02, Department of Economics, City University London.
  2. Geert Dhaene & Koen Jochmans, 2010. "Split-panel jackknife estimation of fixed-effect models," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  3. Fernández-Val, Iván & Savchenko, Yevgeniya & Vella, Francis, 2013. "Evaluating the Role of Individual Specific Heterogeneity in the Relationship Between Subjective Health Assessments and Income," IZA Discussion Papers 7651, Institute for the Study of Labor (IZA).
  4. William H. Greene & Mark N. Harris & Bruce Hollingsworth, 2014. "Inflated Responses in Measures of Self-Assessed Health," Working Papers 14-12, New York University, Leonard N. Stern School of Business, Department of Economics.

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