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Identification and Estimation of Dynamic Binary Response Panel Data Models: Empirical Evidence Using Alternative Approaches

In: Safety Nets and Benefit Dependence

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  • Kenneth Y. Chay
  • Dean R. Hyslop

Abstract

We examine the roles of sample initial conditions and unobserved individual effects in consistent estimation of the dynamic binary response panel data model. Different specifications of the model are estimated using female welfare and labor force participation data from the Survey of Income and Program Participation. These include alternative random effects (RE) models, in which the conditional distributions of both the unobserved heterogeneity and the initial conditions are specified, and fixed effects (FE) conditional logit models that make no assumptions on either distribution. There are several findings. First, the hypothesis that the sample initial conditions are exogenous is rejected by both samples. Misspecification of the initial conditions results in drastically overstated estimates of the state dependence and understated estimates of the short- and long-run effects of children on labor force participation. The FE conditional logit estimates are similar to the estimates from the RE model that is flexible with respect to both the initial conditions and the correlation between the unobserved heterogeneity and the covariates. For female labor force participation, there is evidence that fertility choices are correlated with both unobserved heterogeneity and pre-sample participation histories.

Suggested Citation

  • Kenneth Y. Chay & Dean R. Hyslop, 2014. "Identification and Estimation of Dynamic Binary Response Panel Data Models: Empirical Evidence Using Alternative Approaches," Research in Labor Economics, in: Safety Nets and Benefit Dependence, volume 39, pages 1-39, Emerald Group Publishing Limited.
  • Handle: RePEc:eme:rleczz:s0147-912120140000039001
    DOI: 10.1108/S0147-912120140000039001
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    More about this item

    Keywords

    Binary response panel data; state dependence; unobserved heterogeneity; initial conditions; random effects and fixed effects models; C23; C25; I39; J22;
    All these keywords.

    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
    • I39 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Other
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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