Specification and Estimation of Econometric Duration Models

Princeton University, Princeton NJ

Investigators

Abstract

This project develops new statistical tools for economists and other social scientists interested in studying individual behavior and outcomes over time. These tools will be used to answer empirical questions related to the joint retirement decisions of husbands and wives and to questions in the area of health economics. The research is centered on three general methodological themes. The tools that are developed within each of these will be applicable in a number of areas in economics and the social sciences. The first theme involves situations in which a researcher is interested in the duration of some event. The tools developed in this part of the project will be useful in many different areas of economics: in labor economics, to study the duration of unemployment; in public economics, to study participation in welfare programs; in marketing, to study the long-run effects of advertising; and in health economics, to study the evolution in health status. The innovation relative to existing methods, is that this project will explicitly focus on situations in which two individuals choose their durations jointly. For example, a husband and a wife may jointly decide on their retirement times taking their own as well as their spouses preferences into account. This joint decision will lead to an interaction between the two durations that is fundamentally different from the interaction that one would see if the durations were chosen by, say, two competing firms. Both types of interactions imply that the impact of a policy that affects one person?s behavior, will be enlarged or diminished by the fact that the person?s behavior will in turn influence others. It is therefore important to have tools for measuring the importance of these interactions. The second general scenario addressed in this research involves situations in which two outcomes interact with each other over time. For example, it is well-established that health and socioeconomic status are related, both contemporaneously and over time. In interpreting such correlations, however, it is important to determine whether the correlation exists because a change in one of the two causes the other to change in the future (and, if so, which causes which), or because they are both determined by the same underlying driving forces. The project will continue the development of methods that can be used to answer such questions. The third theme is smaller and more focused. It addresses statistical problems in situations in which a researcher is interested in durations, but only has data on the durations if they fall in some interval. It turns out that this is relevant for studying mortality (and how it related to various economic factors) because certain data sets only contain the dates of death if it occurs over the period in which that data was collected. However, the methodological contributions made here will have applications that are much more general. Broader impacts: The most direct broader impact comes from the fact that software for the new statistical tools will be made available online, and from the training of the students involved in the project. The project will also improve the way economists and other social scientists think about their empirical findings.