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Maximum Likelihood Estimation and Specification Test of the Proportional Hazard Model Using Grouped Durations

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  • Keunkwan Ryu

Abstract

This article develops parametric and semi-parametric, maximum likelihood estimation methods of the proportional hazard model for the case when durations are grouped and heterogeneity is not fully measured. This article also extends Ryu's (1994b) specification tests for the proportional hazard model. The proposed test statistic is easy to implement, takes into account the form of alternative hypothesis to increase power, and identifies the source and direction of non-proportionality. This article identifies the nature of the bias resulting from neglected heterogeneity. This bias is essentially a sample selection bias, well-known in the literature. Gamma and discrete distributions are used to model unobserved heterogeneity. By updating the heterogeneity distribution at each stage of duration process, this article addresses the sample selection bias. The results obtained in this article are applied to tackle left-censoring problem.

Suggested Citation

  • Keunkwan Ryu, 2001. "Maximum Likelihood Estimation and Specification Test of the Proportional Hazard Model Using Grouped Durations," ISER Discussion Paper 0552, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0552
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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
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    7. Ryu, Keunkwan, 1993. "Monotonicity of the Fisher information and the Kullback-Leibler divergence measure," Economics Letters, Elsevier, vol. 42(2-3), pages 121-128.
    8. 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.
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    12. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-1266, September.
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