Identification and Estimation of Categorical Random Coeficient Models

Authors
Gao, Z. 
Pesaran, M. H. 

Loading...
Thumbnail Image
Type
Working Paper
Change log
Abstract

This paper proposes a linear categorical random coefficient model, in which the random coefficients follow parametric categorical distributions. The distributional parameters are identified based on a linear recurrence structure of moments of the random coefficients. A Generalized Method of Moments estimator is proposed, and its finite sample properties are examined using Monte Carlo simulations. The utility of the proposed method is illustrated by estimating the distribution of returns to education in the U.S. by gender and educational levels. We find that rising heterogeneity between educational groups is mainly due to the increasing returns to education for those with postsecondary education, whereas within group heterogeneity has been rising mostly in the case of individuals with high school or less education.

Date
2022-04-14
Keywords
Random coefficient models, categorical distribution, return to education
Publisher
Faculty of Economics, University of Cambridge