Dealing with negative marginal utilities in the discrete choice modelling of labour supply
In discrete choice labour supply analysis, it is often reasonably expected that utility is increasing with income. Yet, analyses based on discrete choice models sometimes mention that, when no restriction is imposed a priori in the statistical optimization program, the monotonicity condition is not fully satisfied ex post. Obviously, the standard statistical optimization program might be completed with conditions (one per individual) imposing positive marginal utilities. Unfortunately, such a high-dimensional program most often appears to be rather time-consuming in order to be solved, if not practically unsolvable. In order to overcome this drawback, some authors impose general parametric restrictions a priori (hence reducing de facto the dimension of the parameter set), which is sufficient to lead to positive marginal utilities ex post. However, those restrictions might sometimes appear to be unnecessarily too severe and then generate a sub-optimal set of estimated values for the parameters of the utility function. Alternatively, we show that it may be easy to avoid unnecessary restrictions. The high-dimensional program including conditions for positive marginal utilities for all can sometimes be equivalently replaced by a one-dimensional one. At the end, no observation is hopefully showing negative marginal utility anymore at optimum.
|Date of creation:||01 Oct 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)1206 872957
Fax: +44 (0)1206 873151
Web page: https://www.iser.essex.ac.uk/euromod/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Berger, Frederic & Islam, Nizamul & LiÃ©geois, 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.
- 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.
- 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 553-89, August.
- M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
- M. Keane & R. Moffitt, . "A structural model of multiple welfare program participation and labor supply," Institute for Research on Poverty Discussion Papers 1080-96, University of Wisconsin Institute for Research on Poverty.
- Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
- José Labeaga & Xisco Oliver & Amedeo Spadaro, 2008.
"Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms,"
Journal of Economic Inequality,
Springer, vol. 6(3), pages 247-273, September.
- José M. Labeaga, Xisco Oliver & Xisco Oliver & Amedeo Spadaro, . "Discrete choice models of labour Supply, behavioural microsimulation and the Spanish tax reforms," Working Papers 2005-14, FEDEA.
- repec:dgr:kubcen:200020 is not listed on IDEAS
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ese:emodwp:em6-10. 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: (Paul Groves)
If references are entirely missing, you can add them using this form.