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Behavioral multistate duration models. What should they look like?

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Abstract

This paper discusses how specification of probabilistic models for multistate duration data generated by individual choices should be justified on a priori theoretical grounds. Preferences are assumed represented by random utilities, where utilities are viewed as random also to the agent himself. First, the paper proposes a characterization of exogenous preferences, (that is, in the special case with no state dependence effects). The main assumption asserts that when preferences are exogenous the current and future indirect utilities are uncorrelated with current and past choices, given unobservables that are perfectly known to the agent. It is demonstrated that under rather weak and general regularity conditions this characterization yields an explicit structure of the utility function as a so-called Extremal stochastic process. Furthermore, from this utility representation it follows that the choice process is a Markov Chain (in continuous- or discrete time), with a particular functional form of the transition probabilities, as explicit functions of the parameters of the utility function and choice set. Subsequently, we show how the model can be extended to allow for structural state dependence effects, and how such state dependence effects can be identified. Moreover, it is discussed how a version of Chamberlain's conditional estimation method applies in the presence of fixed effects. Finally, we discuss two examples of applications.

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  • John K. Dagsvik, 2012. "Behavioral multistate duration models. What should they look like?," Discussion Papers 688, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:688
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp688.pdf
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    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Jaggia, Sanjiv & Trivedi, Pravin K., 1994. "Joint and separate score tests for state dependence and unobserved heterogeneity," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 273-291.
    3. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
    4. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
    5. John K. Dagsvik, 2002. "Discrete Choice in Continuous Time: Implications of an Intertemporal Version of the Iia Property," Econometrica, Econometric Society, vol. 70(2), pages 817-831, March.
    6. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
    7. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
    8. Magnac, Thierry, 2000. "Subsidised Training and Youth Employment: Distinguishing Unobserved Heterogeneity from State Dependence in Labour Market Histories," Economic Journal, Royal Economic Society, vol. 110(466), pages 805-837, October.
    9. Heckman, James J, 1991. "Identifying the Hand of the Past: Distinguishing State Dependence from Heterogeneity," American Economic Review, American Economic Association, vol. 81(2), pages 75-79, May.
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    More about this item

    Keywords

    Duration models; Random utility models; Habit persistence; True state dependence; Extremal process; Markov chain;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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