Dealing with negative marginal utilities in the discrete choice modeling of labor supply

Philippe Liégeois and Nizamul Islam

Economics Letters, 2013, vol. 118, issue 1, 16-18

Abstract: In discrete choice labor supply analysis, it is often reasonably expected that utility will increase with income. Yet, analyses based on discrete choice models sometimes mention that, when no restriction is imposed a priori in the optimization program, the monotonicity condition is not fully satisfied ex post. In order to overcome this limitation, some authors impose restrictions that may appear to be excessively severe. As an alternative, the present paper shows how to simply complete the standard maximum likelihood program in order to derive an optimum that may lead to positive marginal utilities only.

Keywords: Labor supply; Discrete choice; Utility; Monotonicity condition (search for similar items in EconPapers)
JEL-codes: C25 C61 D12 J22 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Working Paper: Dealing with negative marginal utilities in the discrete choice modelling of labour supply (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:118:y:2013:i:1:p:16-18

DOI: 10.1016/j.econlet.2012.04.101

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