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Bayesian Procedures as a Numerical Tool for the Estimation of Dynamic Discrete Choice Models

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  • Peter Haan
  • Daniel Kemptner
  • Arne Uhlendorff

Abstract

Dynamic discrete choice models usually require a general specification of unobserved heterogeneity. In this paper, we apply Bayesian procedures as a numerical tool for the estimation of a female labor supply model based on a sample size which is typical for common household panels. We provide two important results for the practitioner: First, for a specification with a multivariate normal distribution for the unobserved heterogeneity, the Bayesian MCMC estimator yields almost identical results as a classical Maximum Simulated Likelihood (MSL) estimator. Second, we show that when imposing distributional assumptions which are consistent with economic theory, e.g. log-normally distributed consumption preferences, the Bayesian method performs well and provides reasonable estimates, while the MSL estimator does not converge. These results indicate that Bayesian procedures can be a beneficial tool for the estimation of dynamic discrete choice models.

Suggested Citation

  • Peter Haan & Daniel Kemptner & Arne Uhlendorff, 2012. "Bayesian Procedures as a Numerical Tool for the Estimation of Dynamic Discrete Choice Models," Discussion Papers of DIW Berlin 1210, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1210
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.399474.de/dp1210.pdf
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    References listed on IDEAS

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    1. Akay, Alpaslan, 2009. "Dynamics of the Employment Assimilation of First-Generation Immigrant Men in Sweden: Comparing Dynamic and Static Assimilation Models with Longitudinal Data," IZA Discussion Papers 4655, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Anna Kurowska & Michal Myck & Katharina Wrohlich, 2012. "Family and Labor Market Choices: Requirements to Guide Effective Evidence-Based Policy," Discussion Papers of DIW Berlin 1234, DIW Berlin, German Institute for Economic Research.
    2. Zhiyang Jia & Trine E. Vattø, 2016. "The path of labor supply adjustment. Sources of lagged responses to tax-benefit reforms," Discussion Papers 854, Statistics Norway, Research Department.

    More about this item

    Keywords

    Bayesian Estimation; Dynamic Discrete Choice Models; Intertemporal Labor Supply Behavior;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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