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

Rolf Aaberge, Ugo Colombino and Tom Wennemo ()
Additional contact information
Tom Wennemo: Statistics Norway

No 1986, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 so far have not been given the attention they might deserve. A first issue concerns the procedure by which the discrete alternatives are selected to enter the choice set. 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 suggested by McFadden (1978) 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) and of accounting or 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 out-of-sample prediction performance.

Keywords: prediction performance; quantity constraints; discrete-choice models; labour supply (search for similar items in EconPapers)
JEL-codes: C51 C52 H31 J22 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-02
New Economics Papers: this item is included in nep-dcm and nep-pbe
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Citations: View citations in EconPapers (8)

Published - revised version published in: Journal of Economic Surveys, 2009, 23 (3), 586-612

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Related works:
Journal Article: EVALUATING ALTERNATIVE REPRESENTATIONS OF THE CHOICE SETS IN MODELS OF LABOR SUPPLY (2009)
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2008)
Working Paper: Evaluating alternative representations of the choice sets in models of labour supply (2006)
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2006)
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2006)
Working Paper: Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply (2005)
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