Parametric Binary Choice Models

St. Gallen Economics Discussion Paper No. 2005-23

41 Pages Posted: 19 Dec 2005

See all articles by Michael Lechner

Michael Lechner

University of St. Gallen - Swiss Institute for Empirical Economic Research

Stefan Lollivier

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

Thierry Magnac

Toulouse School of Economics; University of Toulouse 1 - Industrial Economic Institute (IDEI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: December 2005

Abstract

This paper discusses the estimation of binary choice panel data models. We begin with different versions of the static random effects model when the explanatory variables are strictly exogenous. Depending on the autocorrelation structure of the errors, different estimators are available and we detail their attractiveness in each situation by trading-off their efficiency and robustness with respect to misspecification. Then, we consider the static model when a time invariant unobservable variable is correlated with the time varying explanatory variables. The non-linearity of binary choice models makes it pretty hard to eliminate individual fixed effects in likelihood functions and moment conditions, because the usual differencing out that works for the linear model does not work here except in special cases. Imposing quite restrictive assumptions is the price to pay to estimate consistently parameters of dynamics for fixed and random effects, in other words cases when the explanatory variables include lagged endogenous variables or are weakly exogenous only.

Keywords: Panel data, nonlinear models

JEL Classification: C23

Suggested Citation

Lechner, Michael and Lollivier, Stefan and Magnac, Thierry, Parametric Binary Choice Models (December 2005). St. Gallen Economics Discussion Paper No. 2005-23, Available at SSRN: https://ssrn.com/abstract=871084 or http://dx.doi.org/10.2139/ssrn.871084

Michael Lechner (Contact Author)

University of St. Gallen - Swiss Institute for Empirical Economic Research ( email )

Varnbuelstrasse 14
St. Gallen, 9000
Switzerland
+41 71 224 2320 (Phone)

Stefan Lollivier

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

Thierry Magnac

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

IZA Institute of Labor Economics ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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