TY - JOUR
AU - Hausman,Jerry A.
TI - Stochastic Problems in the Simulation of Labor Supply
JF - National Bureau of Economic Research Working Paper Series
VL - No. 788
PY - 1981
Y2 - October 1981
DO - 10.3386/w0788
UR - http://www.nber.org/papers/w0788
L1 - http://www.nber.org/papers/w0788.pdf
N1 - Author contact info:
Jerry A. Hausman
Department of Economics, E52-518
MIT
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617/253-3644
Fax: 617/253-1330
E-Mail: jhausman@mit.edu
M1 - published as Jerry A. Hausman. "Stochastic Problems in the Simulation of Labor Supply," in Martin Feldstein, editor, "Behavioral Simulation Methods in Tax Policy Analysis" University of Chicago Press (1983)
AB - Modern work in labor supply attempts to account for nonlinear budget sets created by government tax and transfer programs. Progressive taxation leads to nonlinear convex budget sets while the earned income credit, social security contributions, AFDC, and the proposed NIT plans all lead to nonlinear, nonconvex budget sets. Where nonlinear budget sets occur, the expected value of the random variable, labor supply, can no longer be calculated by simply 'plugging in' the estimated coefficients. Properties of the stochastic terms which arise from the residual or from a stochastic preference structure need to be accounted for. This paper considers both analytical approaches and Monte Carlo approaches to the problem. We attempt to find accurate and low cost computational techniques which would permit extensive use of simulation methodology. Large samples are typically included in such simulations which makes computational techniques an important consideration. But these large samples may also lead to simplifications in computational techniques because of the averaging process used in calculation of simulation results. This paper investigates the tradeoffs available between computational accuracy and cost in simulation exercises over large samples.
ER -