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The estimation of utility consistent labor supply models by means of simulated scores

  • Bloemen, Hans G.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Kapteyn, Arie

We consider a utility consistent static labor supply model with flexible preferences, a non-linear and possibly non-convex budget set, and a wage equation. Three stochastic error terms are introduced to represent respectively optimization and reporting errors, stochastic preferences, and heterogeneity in wages. Coherency conditions on parameters and supports of error distributions are imposed for all observations. The complexity of the model makes it impossible to write down the probability of participation. Hence simulation techniques have to be used in estimation. The properties of the estimation method adopted are first investigated by means of Monte Carlo. After that the model is estimated for Dutch data. We compare our approach with various simpler alternatives proposed in the literature. It turns out that both in the Monte Carlo experiments and for the reqal data the various estimation methods yield very different results. Furthermore estimates are sensitive to the exact specification of the budget constraint.

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File URL: http://degree.ubvu.vu.nl/repec/vua/wpaper/pdf/20030019.pdf
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Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0019.

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Date of creation: 2003
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Handle: RePEc:vua:wpaper:2003-19
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  1. 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.
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  14. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
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  25. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers 464, Massachusetts Institute of Technology (MIT), Department of Economics.
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  29. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-64, May.
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