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Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply

Ugo Colombino (), Rolf Aaberge () and Tom Wennemo
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Tom Wennemo: Research Department, Statistics Norway, Oslo, Norway

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Abstract: During the last two decades, the discrete-choice modelling of labour supply decisions has become increasingly popular, starting with Aaberge et al. (1995) and van Soest (1995). Within the literature adopting this approach there are however two potentially important issues that are worthwhile analyzing in their implications and that up to know have not been given the attention that they might deserve. A first issue concerns the procedure by which the discrete alternative are chosen. For example Van Soest (1995) chooses (non probabilistically) a set of fixed points identical for every individual. This is by far the most widely adopted method. By contrast, Aaberge et al. (1995) adopt a sampling procedure and also assume that the choice set may differ across the households. A second issue concerns the availability of the alternatives. Most authors assume all the values of hours-of-work within some range [0, H] are equally available. At the other extreme, some authors assume only two or three alternatives (e.g. non-participation, part-time and full-time) are available for everyone. Aaberge et al. (1995) assume instead that not all the hour opportunities are equally available to everyone; they specify a probability density function of opportunities for each individual and the discrete choice set used in the estimation is built by sampling from that individual-specific density function. In this paper we explore by simulation the implications of - the procedure used to build the choice set (fixed alternatives vs sampled alternatives) - accounting vs not accounting for a different availability of alternatives. The way the choice set is represented seems to have little impact on the fitting of observed values, but a more significant and important impact on the prediction of policy effects.

Keywords: Microeconometric Models; Discrete Choice; Choice Set; Labour Supply; Tax Reforms. (search for similar items in EconPapers)
JEL-codes: C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm and nep-mic
Date: 2005-10-13
Note: Type of Document - pdf; pages: 21
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Related works:
Journal Article: EVALUATING ALTERNATIVE REPRESENTATIONS OF THE CHOICE SETS IN MODELS OF LABOR SUPPLY (2009) Downloads
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2008) Downloads
Working Paper: Evaluating alternative representations of the choice sets in models of labour supply (2006) Downloads
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2006) Downloads
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2006) Downloads
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2006) Downloads
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