Justifying Functional Forms in Models for Transitions between Discrete States, with Particular Reference to Employment-Unemployment Dynamics

John Dagsvik

No 06/2006, Memorandum from Oslo University, Department of Economics

Abstract: This paper proposes a particular axiomatic approach to motivate the choice of functional forms and distribution of unobservables in continuous time models for discrete panel data analysis. We discuss in particular applications with data on transitions between employment and unemployment. This framework yields a characterization of transition probabilities and duration distributions in terms of structural parameters of the utility function and choice constraints. Moreover, it is discussed how the modeling framework can be extended to allow for involuntary transitions, structural state dependence and random effects.

Keywords: Discrete choice in continuous time; Duration of unemployment/employment; Random utility models; Functional form; Invariance principles (search for similar items in EconPapers)
JEL-codes: C23 C25 C41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-04-25
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-lab and nep-upt
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