Consistent estimation of zero-inflated count models

Applications of zero-inflated count data models have proliferated in health economics. However, zero-inflated Poisson or zero-inflated negative binomial maximum likelihood estimators are not robust to misspecification. This paper proposes Poisson quasi-likelihood estimators as an alternative. These estimators are consistent in the presence of excess zeros without having to specify the full distribution. The advantages of the Poisson quasi-likelihood approach are illustrated in a series of Monte Carlo simulations and in an application to the demand for health services.Excess zeros, Poisson, logit, unobserved heterogeneity, misspecification

Consistent Estimation of the Fixed Effects Ordered Logit Model

The paper re-examines existing estimators for the panel data fixed effects ordered logit model, proposes a new one, and studies the sampling 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, and provide reasons for the inconsistency. Second, the new estimator is never outperformed by the others, seems to be substantially 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 life satisfaction.ordered response, panel data, correlated heterogeneity, incidental parameters

Hedonic Adaptation to Living Standards and the Hidden Cost of Parental Income

High parental income, while undeniably causing beneÞts for a child in terms of better access to education and more favorable labor market outcomes, may at the same time increase a childÕs income aspirations and thereby reduce Þnancial satisfaction, ceteris paribus. In this paper, we investigate the relationship between Þnancial satisfaction and parental income with data from the German Socio-Economic Panel. The results indicate that there is indeed a negative well-being externality of parental income, and that children appear to compare their actual income situation with the aspiration level acquired while growing up.Welfare, happiness, income norm, subjective well-being

A causal interpretation of extensive and intensive margin effects in generalized Tobit models

The usual decomposition of effects in corner solution models into extensive and intensive margins is generally incompatible with a causal interpretation. This paper proposes a decomposition based on the joint distribution of potential outcomes which is meaningful in a causal sense. The difference between decompositions can be substantial and yield diametrically opposed results, as shown in a standard Tobit model example. In a generalized Tobit application exploring the effect of reducing firm entry regulation on bilateral trade flows between countries, estimates suggest that using the usual decomposition would overstate the contribution of the extensive margin by around 15%

Reconsidering the analysis of longitudinal happiness data - with an application to the effect of unemployment

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.Ordered response, panel data, correlated heterogeneity, incidental parameters

Relative status and satisfaction

This paper investigates the relationship between income satisfaction of adult children and their relative economic status, using data from the German Socio-Economic Panel and income rank as an indicator of status. The results show that children appear to compare their actual economic status with that of their parents, deriving large satisfaction gains from an income rank that is higher than that of their parents. The effect is asymmetric with regard to parents, as these seem not to be ifluenced by their children's income rank.happiness, income norm, subjective well-being

The Trade Effects of Endogenous Preferential Trade Agreements

Recent work by Anderson and van Wincoop (2003) establishes an empirical modelling strategy which takes full account of the structural, non-(log-)linear impact of trade barriers on trade in new trade theory models. Structural new trade theory models have never been used to evaluate and quantify the role of endogenous preferential trade agreement (PTA) membership for trade in a way which is consistent with general equilibrium. Apart from this gap, the present paper aims at delivering an empirical model which takes into account both that preferential trade agreement membership is endogenous and that the world matrix of bilateral trade flows contains numerous zero entries. These features are treated in an encompassing way by means of (possibly two-part) Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables in the empirical model.gravity model, endogenous preferential trade agreement membership, Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables

The Trade Effects of Endogenous Preferential Trade Agreements

Recent work by Anderson and van Wincoop (2003) establishes an empirical modeling strategy which takes full account of the structural, non-(log-)linear impact of trade barriers on trade in new trade theory models. Structural new trade theory models have never been used to evaluate and quantify the role of endogenous preferential trade agreement (PTA) membership for trade in a way which is consistent with general equilibrium. Apart from this gap, the present paper aims at delivering an empirical model which takes into account both that preferential trade agreement membership is endogenous and that the world matrix of bilateral trade flows contains numerous zero entries. These features are treated in an encompassing way by means of (possibly two-part) Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables in the empirical model.Gravity model, Endogenous preferential trade agreement membership, Poisson pseudo-maximum likelihood estimation with endogenous binary indicator variables

Hedonic Adaptation to Living Standards and the Hidden Cost of Parental Income

High parental income, while undeniably causing beneÞts for a child in terms of better access to education and more favorable labor market outcomes, may at the same time increase a childÕs income aspirations and thereby reduce Þnancial satisfaction, ceteris paribus. In this paper, we investigate the relationship between Þnancial satisfaction and parental income with data from the German Socio-Economic Panel. The results indicate that there is indeed a negative well-being externality of parental income, and that children appear to compare their actual income situation with the aspiration level acquired while growing up

Estimating fixed effects: perfect prediction and bias in binary response panel models, with an application to the hospital readmissions reduction program

The maximum likelihood estimator for the regression coefficients, β, in a panel binary response model with fixed effects can be severely biased if N is large and T is small, a consequence of the incidental parameters problem. This has led to the development of conditional maximum likelihood estimators and, more recently, to estimators that remove the O(T–1) bias in β^. We add to this literature in two important ways. First, we focus on estimation of the fixed effects proper, as these have become increasingly important in applied work. Second, we build on a bias-reduction approach originally developed by Kosmidis and Firth (2009) for cross-section data, and show that in contrast to other proposals, the new estimator ensures finiteness of the fixed effects even in the absence of within-unit variation in the outcome. Results from a simulation study document favourable small sample properties. In an application to hospital data on patient readmission rates under the 2010 Affo