{ "cells": [ { "cell_type": "markdown", "metadata": {}, "source": [ "# Keane and Wolpin (1997)\n", "**Parameter Estimation via the Method of Simulated Moments (MSM)**" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "In their seminal paper on the career decisions of young men, Keane and Wolpin (1997) estimate a life-cycle model for occupational choice based on NLSY data for young white men. The paper contains a basic and an extended specification of the model. Both models allow for five choice alternatives in each period: white collar sector work, blue collar sector work, military work, school, and staying home. Choice options come with pecuniary and/or non-pecuniary rewards. Agents are assumed to be forward-looking and act under uncertainty because of the occurrence of alternative-specific shocks that affect the current reward of alternatives and only become known to individuals in the period they occur in. Individuals thus form expectations about future shocks and in each period choose the option that maximizes the expected present value of current and future lifetime rewards.\n", "\n", "The extended model compared to the base specification expands the model by introducing more complex skill technology functions that for example allow for skill depreciation and age effects, job mobility and search costs, non-pecuniary rewards for work, re-entry costs for school, and some common returns for school." ] }, { "cell_type": "raw", "metadata": { "raw_mimetype": "text/html" }, "source": [ "