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Inference on an Extended Roy Model, with an Application to Schooling Decisions in France

  • Arnaud Maurel
  • Xavier D'Haultfoeuille

This paper considers the identification and estimation of an extension of Roy’s model (1951) of sectoral choice, which includes a non-pecuniary component in the selection equation and allows for uncertainty on potential earnings. We focus on the identification of the non-pecuniary component, which is key to disentangle the relative importance of monetary incentives versus preferences in the context of sorting across sectors. By making the most of the structure of the selection equation, we show that this component is point identified from the knowledge of the covariates effects on earnings, as soon as one covariate is continuous. Notably, and in contrast to most results on the identification of Roy models, this implies that identification can be achieved without any exclusion restriction nor large support condition on the covariates. As a byproduct, bounds are obtained on the distribution of the ex ante monetary returns. We also propose a three-stage semiparametric estimation procedure for this model, which yields root-n consistent and asymptotically normal estimators. Finally, we apply our results to the educational context, by providing new evidence from French data that non-pecuniary factors are a key determinant of higher education attendance decisions.

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Paper provided by Duke University, Department of Economics in its series Working Papers with number 11-10.

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Length: 54
Date of creation: 2011
Date of revision:
Handle: RePEc:duk:dukeec:11-10
Contact details of provider: Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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