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Department of Economics, University of Oslo Memorandum

No 06/2006:
Justifying Functional Forms in Models for Transitions between Discrete States, with Particular Reference to Employment-Unemployment Dynamics

John K. Dagsvik ()

Abstract: This paper proposes a particular axiomatic approach to motivate the choice of functional forms and distribution of unobservables in continuous time models for discrete panel data analysis. We discuss in particular applications with data on transitions between employment and unemployment. This framework yields a characterization of transition probabilities and duration distributions in terms of structural parameters of the utility function and choice constraints. Moreover, it is discussed how the modeling framework can be extended to allow for involuntary transitions, structural state dependence and random effects.

Keywords: Discrete choice in continuous time; Duration of unemployment/employment; Random utility models; Functional form; Invariance principles; (follow links to similar papers)

JEL-Codes: C23; C25; C41; (follow links to similar papers)

40 pages, April 25, 2006

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