The (mis)specification of Discrete Time Duration Models with Unobserved Heterogeneity: a Monte-Carlo study

Empirical researchers usually prefer statistical models which can be easily estimated with the help of commonly available software packages. Sequential binary models with or without normal random effects are an example of such models which can be adopted to estimate discrete time duration models in presence of unobserved heterogeneity. But an easy-to-implement estimation may incur a cost. In this paper we use Monte Carlo methods to analyze the consequences of omission or misspecification of unobserved heterogeneity in single spell discrete time duration models. ∗University of Essex, Institute for Social and Economic Research (ISER), Wivenhoe Park, Colchester CO4 3SQ, United Kingdom. E-mail: [email protected] †Bank of Italy, Department of Economic Outlook and Monetary Policy Studies, via Nazionale, 91, 00184 Roma Italy and ”Carlo F. Dondena” Centre for Research on Social Dynamics, Bocconi University, Viale Isonzo 25, 20136 Milan, Italy. E-mail: [email protected] ‡We would like to thank John Ermisch and Stephen Jenkins for useful suggestions and comments. The research was supported by the Economic and Social Research Council through their grant to the Research Centre on Micro-social Change in ISER.