This chapter is concerned with the identification and estimation of models of labor supply. The focus is on the key issues that arise from unobserved heterogeneity, nonparticipation and dynamics. We examine the simple “static” labor supply model with proportional taxes and highlight the...

Interaction effects capture the impact of one explanatory variable x1 on the marginal effect of another explanatory variable x2. To explore interaction effects, socalled interaction terms x1x2 are typically included in estimation specifications. While in linear models the effect of a marginal...

Applied econometrics has recently emphasized the identification of causal parameters for policy analysis. This revolution has yet to fully propagate to the field of regional science. We examine the scope for application of the matching approach – part of the modern applied econometrics toolkit...

The classical Heckman (1976, 1979) selection correction estimator (heckit) is misspecified and inconsistent if an interaction of the outcome variable and an explanatory variable matters for selection. To address this specification problem, a full information maximum likelihood estimator and a...