Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors
Laurence J. Kotlikoff
John N. Morris
This paper develops a general multiperiod-multinomial probit model for
panel data to estimate the living arrangements of the elderly. The model
has the following features:
(a) In each period choices do not necessarily obey the assumption of
independence of irrelevant alternatives.
(b) Unobserved person-specific attributes are treated as random effects.
These random effects may also be correlated across alternatives.
(c) In addition, unobserved choice-specific utility components may persist
over some time, creating an autoregressive and/or heteroscedastic error
The model is estimated by simulating the choice probabilities in the
likelihood function. We examine several variants of the specification of
the correlation structure and investigate the extent the biases created by
ignoring intertemporal correlations.
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