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Dealing with negative marginal utilities in the discrete choice modeling of labor supply

Listed author(s):
  • Liégeois, Philippe
  • Islam, Nizamul

In discrete choice labor supply analysis, it is often reasonably expected that utility will increase with income. Yet, analyses based on discrete choice models sometimes mention that, when no restriction is imposed a priori in the optimization program, the monotonicity condition is not fully satisfied ex post. In order to overcome this limitation, some authors impose restrictions that may appear to be excessively severe. As an alternative, the present paper shows how to simply complete the standard maximum likelihood program in order to derive an optimum that may lead to positive marginal utilities only.

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File URL: http://www.sciencedirect.com/science/article/pii/S016517651200242X
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 1 ()
Pages: 16-18

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:16-18
DOI: 10.1016/j.econlet.2012.04.101
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. 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.
  2. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  3. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
  4. José Labeaga & Xisco Oliver & Amedeo Spadaro, 2008. "Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(3), pages 247-273, September.
  5. Frédéric Berger & Nizamul Islam & Philippe Liégeois, 2011. "Behavioural Microsimulation and Female Labour Supply in Luxembourg," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 54(4), pages 389-420.
  6. Berger, Frederic & Islam, Nizamul & Liégeois, Philippe, 2010. "Discrete choice modelling of labour supply in Luxembourg through EUROMOD microsimulation," EUROMOD Working Papers EM5/10, EUROMOD at the Institute for Social and Economic Research.
  7. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
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