PanelDataNotes-17

PanelDataNotes-17 - Econometric Analysis of Panel Data...

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Econometric Analysis of Panel Data William Greene Department of Economics Stern School of Business
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Econometric Analysis of Panel Data 17. Dynamic Models with Common Effects for Binary Choice, Discrete Choice Models with Common Effects
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Dynamic Models - - = β + γ + + ε = = it it i,t 1 i it it i,t 1 i0 it y 1[x y u  >  0] Two 'effects' with similar impact on observations      Unobserved time persistent heterogeneity      State dependence =  state 'persistence' Pr(y 1| y ,..., y , x ,u] F - β + γ + β γ it i,t 1 i [x y u ] How to estimate  ,  , marginal effects, F(.), etc? (1) Deal with the latent common effect      (a) Random effects approaches      (b) Fixed effects approaches (2) Handling the lagged effects:  The initial conditions problem.
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Application – Doctor Visits Riphahn, Million Wambach, JAE, 2003 German Health Care Usage Data , 7,293 Individuals, Varying Numbers of Periods Variables in the file are Data downloaded from Journal of Applied Econometrics Archive. This is an unbalanced panel with 7,293 individuals. They can be used for regression, count models, binary choice, ordered choice, and bivariate binary choice. This is a large data set. There are altogether 27,326 observations. The number of observations ranges from 1 to 7. (Frequencies are: 1=1525, 2=2158, 3=825, 4=926, 5=1051, 6=1000, 7=987). Note, the variable NUMOBS below tells how many observations there are for each person. This variable is repeated in each row of the data for the person. (Downlo0aded from the JAE Archive) DOCTOR = 1(Number of doctor visits > 0) HSAT = health satisfaction, coded 0 (low) - 10 (high) DOCVIS = number of doctor visits in last three months HOSPVIS = number of hospital visits in last calendar year PUBLIC = insured in public health insurance = 1; otherwise = 0 ADDON = insured by add-on insurance = 1; otherswise = 0 HHNINC = household nominal monthly net income in German marks / 10000. (4 observations with income=0 were dropped) HHKIDS = children under age 16 in the household = 1; otherwise = 0 EDUC = years of schooling AGE = age in years MARRIED = marital status EDUC = years of education
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Application: Innovations Bertschek and Lechner, J of Econometrics, 1998
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Application Stewart, JAE, 2007 British Household Panel Survey (1991-1996) 3060 households retained (balanced) out of  4739 total. Unemployment indicator (0.1) Data features Panel data – unobservable heterogeneity State persistence: “Someone unemployed at t-1 is  more than 20 times as likely to be unemployed at t  as someone employed at t-1.”
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Application: Direct Approach
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GHK Simulation/Estimation The presence of the autocorrelation and state dependence in the model invalidate the simple maximum likelihood procedures we examined earlier. The appropriate likelihood function is constructed by formulating the probabilities as Prob( y i,0 , y i,1 , . . . ) = Prob( y i,0 ) × Prob( y i,1 | y i,0 ) × ?  ?  ? ×Prob( y i,T | y i,T-1 ) .
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