Weighted choice probability models Example: Labor supply.
Transcript of Weighted choice probability models Example: Labor supply.
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Weighted choice probability models
Example: Labor supply
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Number of jobs
• Let m(h) be the number of jobs in the choice set B(h). Although m(h) may also depend on the wage rate, we suppress this in the notation here. The non-market choice consists of one alternative so that m(0)=1.
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Max utility under constraints
• The assumptions made above allow us to derive the probability that an agent will choose a job with hours of work h within the choice set B(h). By well-known results, it follows that if the agent is a utility maximizer, then the probability that job z within the choice set B(h) is chosen, is given by
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Choice probability
• The choice of any job:
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