On the role of unobserved preference Heterogeneity in discrete choice Models of labour supply

Daniele Pacifico

No 6, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: The aim of this paper is to analyse the impact of unobserved preference heterogeneity in empirical applications of discrete choice models of labour supply. Typically, unobserved heterogeneity is estimated either with continuous or discrete mixture models. However, in order to avoid estimation difficulties, most of the empirical analysis assumes a relatively constrained mixture, standard examples being models where only few coefficients are allowed to vary with independent normal distributions or with discrete distributions with few mass points. We compare labour supply elasticities obtained with these typical specifications of unobserved heterogeneity with those from a more general model that we are able to estimate through an EM algorithm for the nonparametric estimation of mixed models. Results show that labour supply elasticities change significantly with respect to a basic model without unobserved heterogeneity only when the joint distribution of the varying tastes is left completely unspecified.

Keywords: labour supply; unobserved heterogeneity; mixed logit models; EM algorithm (search for similar items in EconPapers)
JEL-codes: C14 C25 H24 H31 J22 (search for similar items in EconPapers)
Pages: 29
Date: 2014-06
New Economics Papers: this item is included in nep-dcm, nep-lab and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:2014-6

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