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Multinomial Choice and Selectivity

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In this paper we discuss two types of selection problems. The first problem is motivated by labor market analyses such as the estimation of sector-specific wage equations where the sector for which the wages are observed are chosen by the agents. In contrast to previous formulations which usually are based on a probit framework, we assume here that the discrete choice is generated by a multinomial logit model with random coefficients (mixed multinomial logit model). The advantage compared to the multinomial probit setting is that choice sets with many alternatives become almost as easy to handle as the binary case. The second problem we analyze is motivated by studies where the interest is to estimate the effect of for example labor market training programs on the labor market opportunities. Previous works have, to the best of my knowledge, focused solely on the effect of labor market programs on earnings. As in the first case we allow for arbitrarily large choice sets of feasible first stage choices (programs) as well as the second stage choices (labor market status).

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 264.

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Date of creation: Jan 2000
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Handle: RePEc:ssb:dispap:264

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Keywords: Selection bias; discrete/continuous choice.;

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  1. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
  2. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  3. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
  4. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
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