Reconsidering the Analysis of Longitudinal Happiness Data - With an Application to the Effect of Unemployment

37 Pages Posted: 22 Apr 2011 Last revised: 28 Mar 2012

See all articles by Gregori Baetschmann

Gregori Baetschmann

University of Zurich

Kevin E. Staub

University of Melbourne - Department of Economics; IZA Institute of Labor Economics

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 2011

Abstract

The paper reconsiders existing estimators for the panel data fixed effects ordered logit model, including one that has not been used in econometric studies before, and studies the small sample properties of these estimators in a series of Monte Carlo simulations. There are two main findings. First, we show that some of the estimators used in the literature are inconsistent. Second, the new estimator seems to be more immune to small sample bias than other consistent estimators and is easy to implement. The empirical relevance is illustrated in an application to the effect of unemployment on happiness. Choosing the right estimator avoids a bias of up to 30 percent in key parameters.

Keywords: Ordered response, panel data, correlated heterogeneity, incidental parameters

JEL Classification: C23, C25, J28, J64

Suggested Citation

Baetschmann, Gregori and Staub, Kevin E. and Winkelmann, Rainer, Reconsidering the Analysis of Longitudinal Happiness Data - With an Application to the Effect of Unemployment (June 2011). Available at SSRN: https://ssrn.com/abstract=1815069 or http://dx.doi.org/10.2139/ssrn.1815069

Gregori Baetschmann (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Kevin E. Staub

University of Melbourne - Department of Economics ( email )

Melbourne, Victoria 3010
Australia

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research ( email )

Raemistrasse 62
CH-8001 Zurich
Switzerland
++41 1 634 2292 (Phone)
++41 1 634 4996 (Fax)

HOME PAGE: http://www.unizh.ch/sts/

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 503 (Phone)
+49 228 3894 510 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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