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Bayesian Inference for Duration Data with Unobserved and Unknown Heterogeneity: Monte Carlo Evidence and an Application

  • Paserman, M. Daniele

    ()

    (Boston University)

This paper describes a semiparametric Bayesian method for analyzing duration data. The proposed estimator specifies a complete functional form for duration spells, but allows flexibility by introducing an individual heterogeneity term, which follows a Dirichlet mixture distribution. I show how to obtain predictive distributions for duration data that correctly account for the uncertainty present in the model. I also directly compare the performance of the proposed estimator with Heckman and Singer's (1984) Non Parametric Maximum Likelihood Estimator (NPMLE). The methodology is applied to the analysis of youth unemployment spells. Compared to the NPMLE, the proposed estimator reflects more accurately the uncertainty surrounding the heterogeneity distribution.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 996.

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Length: 45 pages
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:iza:izadps:dp996
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  1. Keisuke Hirano, 2002. "Semiparametric Bayesian Inference in Autoregressive Panel Data Models," Econometrica, Econometric Society, vol. 70(2), pages 781-799, March.
  2. 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.
  3. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  4. Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
  5. Gary Chamberlain & Guido W. Imbens, 1996. "Nonparametric Applications of Bayesian Inference," NBER Technical Working Papers 0200, National Bureau of Economic Research, Inc.
  6. Michele Campolieti, 2001. "Bayesian semiparametric estimation of discrete duration models: an application of the dirichlet process prior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(1), pages 1-22.
  7. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
  8. Ruggiero, Michele, 1994. "Bayesian semiparametric estimation of proportional hazards models," Journal of Econometrics, Elsevier, vol. 62(2), pages 277-300, June.
  9. Dynarski, Mark & Sheffrin, Steven M, 1987. "Consumption and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 411-28, May.
  10. Ham, John C & LaLonde, Robert J, 1996. "The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training," Econometrica, Econometric Society, vol. 64(1), pages 175-205, January.
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