Jerry A. Hausman

Specification Tests in Econometrics

Using the result that under the null hypothesis of no misspecification an asymptotically efficient estimator must have zero asymptotic covariance with its difference from a consistent but asymptotically inefficient estimator, specification tests are devised for a number of model specifications in econometrics. Local power is calculated for small departures from the null hypothesis. An instrumental variable test as well as tests for a time series cross section model and the simultaneous equation model are presented. An empirical model provides evidence that unobserved individual factors are present which are not orthogonal to the included right-hand-side variable in a common econometric specification of an individual wage equation.

Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables

This article presents a model of individual behavior in the purchase and utilization of energy-using durables. The tradeoff between capital costs for more energy efficient appliances and operating costs for the appliances is emphasized. Using data on both the purchase and utilization of room air conditioners, the model is applied to a sample of households. The utilization equation indicates a relatively low price elasticity. The purchase equation, based on a discrete choice model, demonstrates that individuals do trade off capital costs and expected operating costs. The results also show that individuals use a discount rate of about 20 percent in making the tradeoff decision and that the discount rate varies inversely with income.

A CONDITIONAL PROBIT MODEL FOR QUALITATIVE CHOICE: DISCRETE DECISIONS RECOGNIZING INTERDEPENDENCE AND HETEROGENEOUS PREFERENCES'

An earlier version of this paper was presented at the Third World Congress of the Econometric Society, August, 1975

Assessing the potential demand for electric cars

Abstract An ordered logit specification for use on ranked individual data is used to analyze survey data on potential consumer demand for electric cars. In many situations in economics and marketing we would like to be able to forecast consumer demands for goods which have not yet appeared in actual markets. By defining goods as a bundle of underlying attributes, we can use discrete choice models to estimate consumer evaluations. Then new good demand is forecast by use of the estimated coefficients to compare consumer evaluation of the new good to existing choices. When ranked individual data are available, we can estimate separate coefficients for each individual rather than assuming identical coefficients as is usual with logit models. Our results indicate considerable dispersion in individual coefficients. This finding can have important implications for new product analysis.

Competitive Analysis with Differentiated Products

Differentiated products are the central economic focus of competition in consumer goods products such as cereal, soda, and beer. We first estimate demand models which do not restrict unduly the pattern of consumer preferences as does much previous research in the area of differenciated products. Using recently available transactions data we estimate own and cross price elasticities in a relatively unrestricted manner. We next turn to competitive analysis using our estimated demand system. We consider two applications in this paper. The main economic factor that we consider is that the firms which produce the differentiated products almost always tend to be multi-product firms in the given industry. Our first application is competitive analysis when two firms are allowed to merge. The other application that we consider is inference on the competitive structure in an industry. In both applications we consider the effect of a multi-product firm where its competitive decisions for one brand affects it sales and prices for other brands that it produces.

Misclassification of the dependent variable in a discrete-response setting

Abstract Misclassification of dependent variables in a discrete-response model causes inconsistent coefficient estimates when traditional estimation techniques (e.g., probit or logit) are used. A modified maximum likelihood estimator that corrects for misclassification is proposed. A semiparametric approach, which combines the maximum rank correlation estimator of Han (1987) (Journal of Econometrics 35, 303–316) with isotonic regression, allows for more general forms of misclassification than the maximum likelihood approach. The parametric and semiparametric estimation techniques are applied to a model of job change with two commonly used data sets, the Current Population Survey (CPS) and the Panel Study of Income Dynamics (PSID).

Specification and estimation of simultaneous equation models

Publisher Summary The simultaneous equation models are the most remarkable development in econometrics. Econometric research has led to further developments and applications of these statistical models. This chapter discusses the specification for the estimation of simultaneous equation models. The most important set of identification conditions—namely coefficient restrictions, involves determining whether a sufficient number of instruments are available. It has recently been proved that the other type of identification restrictions used in linear simultaneous equation models—namely covariance restrictions, are most easily understood in terms of instrumental variables. In terms of estimation almost all consistent estimators are either instrumental variables estimators or asymptotic approximations to them. The original maximum likelihood estimator (FIML) proposed for the simultaneous equation model is an instrumental variable estimator; other estimators rely on asymptotic approximations to the basic likelihood equations. The chapter discusses exogeneity tests and specification tests in reference to the simultaneous equation model. The nonlinear simultaneous equation model is also discussed in the chapter.

A utility-consistent, combined discrete choice and count data model Assessing recreational use losses due to natural resource damage

Abstract A two-stage budgeting approach can often be taken when analyzing consumer choice situations. In this paper we examine the particular situation where a consumer makes purchases of a discrete commodity of which there are a number of brands. In the first stage, the consumer decides how many purchases to make; in the second stage, the consumer decides how to allocate these purchases across brands. Our econometric approach to this type of situation uses a utility-consistent, combined discrete choice and count data model. The second stage, which is specified as a multinomial choice model, produces a price index for the commodity which is used to estimate the first stage, which is specified as a count data model. We apply the model to recreational demand behavior in Alaska in order to estimate the welfare losses suffered by recreational users due to the Exxon Valdez oil spill. These results may provide useful input to government agencies attempting to estimate the appropriate level of taxes, fines, or regulations for deterring damage to the environment.

Specifying and testing econometric models for rank-ordered data

Abstract The rank-ordered logit model is used as the basic specification for rank-ordered consumer choice data. Two specification tests are proposed for this specification. The first is a Hausman specification test for the independence from irrelevant alternatives hypothesis. The second test examines the possibility that the estimates of equivalent prices are consistent. Two alternative estimators are also proposed. One generalizes the rank-ordered logit specification to allow for a form of heteroscedasticity that permits top ranked choices to be more precisely ranked than bottom ranked choices. The other estimator is an application of a weighted M -estimator that yields consistent equivalent price estimators despite any misspecification of the distribution in the rank-ordered logit model.

Superstars in the National Basketball Association: Economic Value and Policy

An econometric analysis demonstrates that television ratings for NBA games are substantially higher when certain players (“superstars”) are involved. Thus, these superstars are quite important for generating revenue, not only for their own teams but for other teams as well. Using the econometric analysis and additional information on attendance and paraphernalia sales, we estimate the value of Michael Jordan to the other NBA teams to be approximately