The Taylor Decomposition: A Unified Generalization of the Oaxaca Method to Nonlinear Models
The widely used Oaxaca decomposition applies to linear models. Extending it to commonly used nonlinear models such as binary choice and duration models is not straightforward. This paper shows that the original decomposition using a linear model can be obtained as a first order Taylor expansion. This basis provides a means of obtaining a coherent and unified approach which applies to nonlinear models, which we refer to as a Taylor decomposition. Explicit formulae are provided for the Taylor decomposition for the main nonlinear models used in applied econometrics including the Probit binary choice and Weibull duration models. The detailed decomposition of the explained component is expressed in terms of what are usually referred to as marginal effects and a remainder. Given Jensen's inequality, the latter will always be present in nonlinear models unless an ad hoc or tautological basis for decomposition is used.
|Date of creation:||May 2013|
|Date of revision:||May 2013|
|Contact details of provider:|| Web page: http://www.amse-aixmarseille.fr/en|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:aim:wpaimx:1332. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yves Doazan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.