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Parameters Heterogeneity in a Model of Labour Supply: Exploring the Performance of Mixed Logit

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  • Ugo Colombino

    ()

  • Marilena Locatelli

    ()

Abstract

In this note we investigate the empirical differences between the Random Utility model with fixed coefficients (Conditional Logit), and the Random Utility model with random coefficients (Mixed Logit). We consider a model of household labour supply developed for a project aimed at the evaluation of alternative Basic Income mechanisms. Data are drawn from the 1998 Bank of Italy survey of household income and wealth (SHIW 1998) and choice alternatives are generated using EUROMOD. We compare the estimates of the Conditional Logit and Mixed Logit. We also compare the respective results from simulating the effects of a Flat Tax reform. Although on average the estimates of Conditional Logit and of Mixed Logit are very close, the Mixed Logit estimates reveal that there is a significant unobserved heterogeneity of preferences. We also compare the simulations of a hypothetical Flat Tax reform. Although the differences are small, yet the results would imply different policy conclusions depending on whether Conditional Logit or Mixed Logit is adopted.

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Bibliographic Info

Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp21_08.

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Length: 24 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:wpc:wplist:wp21_08

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Keywords: labour supply; conditional logit; mixed logit; unobserved heterogeneity;

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  1. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  2. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  3. Colombino, Ugo & Locatelli, Marilena & Narazani, Edlira & O'Donoghue, Cathal & Shima, Isilda, 2008. "Behavioural and welfare effects of basic income policies: a simulation for European countries," EUROMOD Working Papers EM5/08, EUROMOD at the Institute for Social and Economic Research.
  4. 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.
  5. John K. Dagsvik & Steinar Strøm, 2004. "Sectoral Labor Supply, Choice Restrictions and Functional Form," Discussion Papers 388, Research Department of Statistics Norway.
  6. 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.
  7. Kenneth E. Train, 1998. "Recreation Demand Models with Taste Differences over People," Land Economics, University of Wisconsin Press, vol. 74(2), pages 230-239.
  8. David Hensher & William Greene, 2003. "The Mixed Logit model: The state of practice," Transportation, Springer, vol. 30(2), pages 133-176, May.
  9. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
  10. Bourguignon, F. & O'Donoghue, C. & Sastre-Descals, J. & Spadara, A. & Utili, F., 1997. "Eur3: A Prototype European Tax-Benefit Model," Cambridge Working Papers in Economics 9723, Faculty of Economics, University of Cambridge.
  11. Colombino, Ugo & Nese, Annamaria, 2008. "Preference Heterogeneity in Relation to Museum Services," CELPE Discussion Papers 105, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
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