Bayesian Procedures as a Numerical Tool for the Estimation of Dynamic Discrete Choice Models

21 Pages Posted: 19 May 2012

See all articles by Peter Haan

Peter Haan

DIW Berlin, German Institute for Economic Research; IZA Institute of Labor Economics

Daniel Kemptner

German Institute for Economic Research (DIW Berlin)

Arne Uhlendorff

IZA Institute of Labor Economics

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Abstract

Dynamic discrete choice models usually require a general specification of unobserved heterogeneity. In this paper, we apply Bayesian procedures as a numerical tool for the estimation of a female labor supply model based on a sample size which is typical for common household panels. We provide two important results for the practitioner: First, for a specification with a multivariate normal distribution for the unobserved heterogeneity, the Bayesian MCMC estimator yields almost identical results as a classical Maximum Simulated Likelihood (MSL) estimator. Second, we show that when imposing distributional assumptions which are consistent with economic theory, e.g. log-normally distributed consumption preferences, the Bayesian method performs well and provides reasonable estimates, while the MSL estimator does not converge. These results indicate that Bayesian procedures can be a beneficial tool for the estimation of dynamic discrete choice models.

Keywords: Bayesian estimation, dynamic discrete choice models, intertemporal labor supply behavior

JEL Classification: C11, C25, J22

Suggested Citation

Haan, Peter and Kemptner, Daniel and Uhlendorff, Arne, Bayesian Procedures as a Numerical Tool for the Estimation of Dynamic Discrete Choice Models. IZA Discussion Paper No. 6544. Available at SSRN: https://ssrn.com/abstract=2062743

Peter Haan (Contact Author)

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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

Daniel Kemptner

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Arne Uhlendorff

IZA Institute of Labor Economics ( email )

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

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