Dynamic binary outcome models with maximal heterogeneity

Browning, Martin; Carro, Jesús M.

Publication:
Dynamic binary outcome models with maximal heterogeneity

dc.affiliation.dpto	UC3M. Departamento de Economía	es
dc.contributor.author	Browning, Martin
dc.contributor.author	Carro, Jesús M.
dc.contributor.editor	Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned	2009-03-11T13:08:19Z
dc.date.available	2009-03-11T13:08:19Z
dc.date.issued	2009-02
dc.description.abstract	Most econometric schemes to allow for heterogeneity in micro behaviour have two drawbacks: they do not fit the data and they rule out interesting economic models. In this paper we consider the time homogeneous first order Markov (HFOM) model that allows for maximal heterogeneity. That is, the modelling of the heterogeneity does not impose anything on the data (except the HFOM assumption for each agent) and it allows for any theory model (that gives a HFOM process for an individual observable variable). `Maximal' means that the joint distribution of initial values and the transition probabilities is unrestricted. We establish necessary and sufficient conditions for the point identification of our heterogeneity structure and show how it depends on the length of the panel. A feasible ML estimation procedure is developed. Tests for a variety of subsidiary hypotheses such as the assumption that marginal dynamic effects are homogeneous are developed. We apply our techniques to a long panel of Danish workers who are very homogeneous in terms of observables. We show that individual unemployment dynamics are very heterogeneous, even for such a homogeneous group. We also show that the impact of cyclical variables on individual unemployment probabilities differs widely across workers. Some workers have unemployment dynamics that are independent of the cycle whereas others are highly sensitive to macro shocks.
dc.format.mimetype	application/pdf
dc.identifier.issn	2340-5031
dc.identifier.repec	we091710
dc.identifier.uri	https://hdl.handle.net/10016/3802
dc.language.iso	eng
dc.relation.hasversion	http://hdl.handle.net/10016/20689
dc.relation.ispartofseries	Workign papers. Economics
dc.relation.ispartofseries	09-10
dc.rights	Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRights	open access
dc.rights.uri	http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.eciencia	Economía
dc.subject.jel	C23
dc.subject.jel	C24
dc.subject.jel	J64
dc.subject.other	Discrete choice
dc.subject.other	Markov processes
dc.subject.other	Nonparametric identification
dc.subject.other	Unemployment dynamics
dc.title	Dynamic binary outcome models with maximal heterogeneity
dc.type	working paper	*
dspace.entity.type	Publication