Melvyn Weeks

Discrete Choice Models in Preference Space and Willingness-to Pay Space

In models with unobserved taste heterogeneity, distributional assumptions can be placed in two ways: (1) by specifying the distribution of coefficients in the utility function and deriving the distribution of willingness to pay (wtp), or (2) by specifying the distribution of wtp and deriving the distribution of coefficients. In general the two approaches are equivalent, in that any mutually compatible distributions for coefficients and wtp can be represented in either way. However, in practice, convenient distributions, such as normal or lognormal, are usually specified, and these convenient distributions have different implications when placed on wtps than on coefficients. We compare models that use normal and lognormal distributions for coefficients (models in preference space) with models using these distributions for wtp (models in wtp space). We find that the models in preference space fit the data better but provide less reasonable distributions of wtp than the models in wtp space.

Provincial Conditional Income Convergence in China, 1953-1997: A Panel Data Approach

Abstract This paper examines the tendency towards income convergence among Chinas main provinces during the two periods: the pre‐reform period 1953–1977 and the reform period 1978–1997 using the framework of the Solow growth model. The panel data method accounts for not only province‐specific initial technology level but also the heterogeneity of the technological progress rate between the fast‐growing coastal and interior provinces. Estimation problems of weak instruments and endogeneity are addressed by the use of a system generalized method of moments (GMM) estimator. The main empirical finding is that there is a system‐wide income divergence during the reform period because the coastal provinces do not share a common technology progress rate with the interior provinces.

Non-nested Hypothesis Testing: An Overview

In econometric analysis, non-nested models arise naturally when rival economic theories are used to explain the same phenomenon, such as unemployment, inflation or output growth. The authors examine the problem of hypothesis testing when the models under consideration are ‘non-nested’ or belong to ‘separate’ families of distributions in the sense that none of the individual models may be obtained form the remaining, either by imposition of parameter restrictions or through a limiting process. Although the primary focus is on non-nested hypothesis testing, the authors briefly discuss the problem of model selection and the differences and similarities between the two approaches. By using the linear regression model as a convenient framework, the authors examine three broad approaches to non-nested hypothesis testing: the modified (centred) long-likelihood ratio procedure, the comprehensive models approach, and the encompassing procedure. Finally, they consider a number of practical problems which arise in the application of non-nested tests to non-linear models such as the probit and logit qualitative response models.

Home Grown or Imported? Initial Conditions, External Anchors and the Determinants of Institutional Reform in the Transition Economies*

In this article we examine the determinants of institutional change using a panel dataset comprising 25 transition economies. A defining characteristic of our approach is that we treat institutional change as a multidimensional unobserved variable, accounting for the fact that each of our indicators represents a noisy signal. Our results suggest that institutional change is significantly path dependent. However, policy can to some extent break this dependence through economic and political liberalisation at the start of the transition and with the help of an external anchor such as EU accession.

Robust growth determinants

This paper investigates the robustness of determinants of economic growth in the presence of model uncertainty, parameter heterogeneity and outliers. The robust model averaging approach introduced in the paper uses a flexible and parsimonious mixture modeling that allows for fat-tailed errors compared to the normal benchmark case. Applying robust model averaging to growth determinants, the paper finds that eight out of eighteen variables found to be significantly related to economic growth by Sala-i-Martin et al. (2004) are sensitive to deviations from benchmark model averaging. For example, the GDP shares of mining or government consumption, are no longer robust or economically significant once deviations from the normal benchmark assumptions are allowed. The paper identifies outlying observations - most notably Botswana - in explaining economic growth in a cross-section of countries.

The Multinomial Probit Model Revisited: A Discussion of Parameter Estimability, Identification and Specification Testing

In this paper we examine the multinomial probit model in the light of recent developments in the field of simulation-based inference. We focus upon five broad areas: specification of multinomial choice models; parameter estimability and the use of simulation techniques, parameter identification; specification testing; and practical issues in simulation-based inference. Although the substitution of simulated probabilities for difficult to compute multi-dimensional integrals represents a significant step, by examining the more tenuous task of identification and in particular the identification of covariance parameters, we show how the specification and estimation of the multinomial probit still represents a formidable task. Copyright 1997 by Blackwell Publishers Ltd

Systemic Financial Crises, Balance Sheets, and Model Uncertainity

This paper empirically examines the probability and intensity of financial crises during the 1990s with a view to informing crisis prevention and mitigation policies. The econometric analysis uses a decision-theoretic approach, rather than the more standard general-to-specific approach, to address the high degree of model uncertainty. The results affirm the importance of balance sheets in the probability and intensity of financial crises, especially corporate balance sheet stresses and foreign exchange liquidity shortfalls. Model uncertainty is a bigger problem for estimating crisis intensity compared to crisis probability.

Behavioural tax microsimulation with finite hours choices

Abstract It is often argued that institutional factors constrain the labour supply choices open to the individual. In this paper we present an alternative to the standard neoclassical model of labour supply under the presumption that the number of hours choices are discrete and finite. We explore alternative specifications of discrete models of labour supply which are appropriate for the microsimulation of the behavioural impact of tax policy reform. Policy simulations are carried out for a basic income reform.

The Statistical Relationship between Bivariate and Multinomial Choice Models

The authors demonstrate the conditions under which the bivariate probit model can be considered a special case of the more general multinomial probit model. Since the attendant parameter restrictions produce a singular covariance matrix, the subsequent problems of testing on the boundary of the parameter space are circumvented by the construction of a score test.

Asymmetric Adjustment and Bias in Estimation of an EquilibriumRelationship from a Cointegrating Regression

This paper uses Monte Carlo methods to investigate the effects of asymmetricadjustment on estimates of the parameters of the equilibrium relationshipbetween a set of variables. We demonstrate that simple least squares estimatesand the implicit estimates from a symmetric error correction model both leadto biases in the constant term. This bias increases with the size of theasymmetry and shows no tendency to decline with the sample size. We also showthat if the biased estimates of the equilibrium relationship are then used todevide the sample into different regimes to test for assymmetric adjustment,then the resulting test has low power. The power of tests for asymmetry canbe increased significantly by using simultaneous estimation of the parametersof the equilibrium relationship and the asymmetric adjustment process.