Dealing with negative marginal utilities in the discrete choice modeling of labor supply

Publication type:

Journal Article

Authors

Philippe Liégeois and Nizamul Islam

Publication date

15 Jan 2013

Summary

In discrete choice labor supply analysis, it is often reasonably expected that utility will increase with income. Yet, analyses based on discrete choice models sometimes mention that, when no restriction is imposed a priori in the optimization program, the monotonicity condition is not fully satisfied ex post. In order to overcome this limitation, some authors impose restrictions that may appear to be excessively severe. As an alternative, the present paper shows how to simply complete the standard maximum likelihood program in order to derive an optimum that may lead to positive marginal utilities only.

Published in

Economics Letters

DOI

http://dx.doi.org/10.1016/j.econlet.2012.04.101

ISSN

16

Subjects

Labour Market, Welfare Benefits and Microsimulation

Links

http://serlib0.essex.ac.uk/record=b1614015~S5