EconPapers    
Economics at your fingertips  
 

Heterogeneity in dynamic discrete choice models

Martin Browning and Jesus Carro ()

No 287, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We consider dynamic discrete choice models with heterogeneity in both the levels parameter and the state dependence parameter. We first analyse the purchase of full fat milk using a long consumer panel (T > 100) on many households. The large T nature of the panel allows us to consistently estimate the parameters of each household separately. This analysis indicates strongly that the levels and the state dependence parameter are heterogeneous and dependently distributed. This empirical analysis motivates the theoretical analysis which considers the estimation of dynamic discrete choice models on short panels, allowing for more heterogeneity than is usually accounted for. The theoretical analysis considers a simple two state, first order Markov chain model without covariates in which both transition probabilities are heterogeneous. Using such a model we are able to derive small sample analytical results for bias and mean squared error. We discuss the maximum likelihood approach, a novel bias corrected version of the latter and we also develop a new estimator that minimises the integrated mean square error, which we term MIMSE. The attractions of the latter estimator are that it is very easy to compute, it is always identified and it converges to maximum likelihood as T becomes large so that it inherits all of the desirable large sample properties of MLE. Our main finding is that in almost all short panel contexts the MIMSE significantly outperforms the other two estimators in terms of mean squared error.

Keywords: Unobserved Heterogeneity; Heterogeneous Slopes; Fixed Effects; Binary Choice; Panel Data (search for similar items in EconPapers)
JEL-codes: C23 (search for similar items in EconPapers)
Date: 2006-10-01
New Economics Papers: this item is included in nep-dcm and nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:f29d3a98-3d5e-43f0-aede-4b853e96b843 (text/html)

Related works:
Journal Article: Heterogeneity in dynamic discrete choice models (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:287

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).

 
Page updated 2021-06-10
Handle: RePEc:oxf:wpaper:287