The (Mis)Specification of Discrete Duration Models with Unobserved Heterogeneity: A Monte Carlo Study

Abstract

Empirical researchers usually prefer statistical models that can be easily estimated using standard software packages. One such model is the sequential binary model with or without normal random effects; such models can be adopted to estimate discrete duration models with unobserved heterogeneity. But ease of estimation may come at a cost. In this paper we conduct a Monte Carlo simulation to evaluate the consequences of omitting or misspecifying the unobserved heterogeneity distribution in single-spell discrete duration models.