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Heterogeneity and Microeconometrics Modelling

  • Martin Browning

    (Department of Economics, University of Copenhagen)

  • Jesus Carro

    (Department of Economics, Carlos III, Madrid)

Presented at the 2005 Econometric Society World Congress Plenary Session on "Modelling Heterogeneity". We survey the treatment of heterogeneity in applied microeconometrics analyses. There are three themes. First, there is usually much more heterogeneity than empirical researchers allow for. Second, the inappropriate treatment of heterogeneity can lead to serious error when estimating outcomes of interest. Finally, once we move away from the traditional linear model with a single 'fixed effect', it is very difficult to account for heterogeneity and fit the data and maintain coherence with theory structures. The latter task is one for economists: "heterogeneity is too important to be left to the statisticians". The paper concludes with a report of our own research on dynamic discrete choice models that allow for maximal heterogeneity.

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File URL: http://www.econ.ku.dk/cam/wp0910/wp0406/2006-03.pdf/
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Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2006-03.

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Length: 25 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:kud:kuieca:2006_03
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  1. Cunha, Flavio & Heckman, James & Navarro, Salvador, 2004. "Separating uncertainty from heterogeneity in life cycle earnings," Working Paper Series 2005:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Martin Browning & Jesus Carro, 2006. "Heterogeneity in dynamic discrete choice models," Economics Series Working Papers 287, University of Oxford, Department of Economics.
  3. Javier Alvarez & Martin Browning & Mette Ejrnæs, 2001. "Modelling Income Processes with lots of heterogeneity," CAM Working Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  4. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, 01.
  5. Pedro Mira & Jes�s M. Carro, 2006. "A dynamic model of contraceptive choice of Spanish couples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 955-980.
  6. Ivan Fernandez-Val, 2005. "Estimation of Structural Parameters and Marginal Effects in Binary Choice Panel Data Models with Fixed Effects," Boston University - Department of Economics - Working Papers Series WP2005-38, Boston University - Department of Economics.
  7. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers 559, Federal Reserve Bank of Minneapolis.
  8. Tiemen Woutersen, 2002. "Robustness against Incidental Parameters," UWO Department of Economics Working Papers 20028, University of Western Ontario, Department of Economics.
  9. James J. Heckman & Rosa Matzkin & Lars Nesheim, 2003. "Simulation and Estimation of Nonaddative Hedonic Models," NBER Working Papers 9895, National Bureau of Economic Research, Inc.
  10. Carro, Jesus M., 2007. "Estimating dynamic panel data discrete choice models with fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 503-528, October.
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