Large earnings and ability differences exist across majors. This paper seeks to esti-mate the monetary returns to particular majors as well as find the causes of the ability sorting across majors. In order to accomplish this, I estimate a dynamic model of college and major choice. Even after controlling for selection, large earnings premiums exist for certain majors. Differences in monetary returns explain little of the ability sorting across majors; virtually all ability sorting is because of preferences for particular majors in college and the workplace, with the former being larger than the latter.

This paper proposes a new nested algorithm (NPL) for the estimation of a class of discrete Markov decision models and studies its statistical and computational properties. Our method is based on a representation of the solution of the dynamic programming problem in the space of conditional choice probabilities. When the NPL algorithm is initialized with consistent nonparametric estimates of conditional choice probabilities, successive iterations return a sequence of estimators of the structural parameters which we call K-stage policy iteration estimators. We show that the sequence includes as extreme cases a Hotz-Miller estimator (for K = 1) and Rust’s nested fixed point estimator (in the limit when K →�). Furthermore, the asymptotic distribution of all the estimators in the sequence is the same and equal to that of the maximum likelihood estimator. We illustrate the performance of our method with several examples based on Rust’s bus replacement model. Monte Carlo experiments reveal a trade-off between finite sample precision and computational cost in the sequence of policy iteration estimators.

This paper reviews methods for the estimation of dynamic discrete choice structural models and discusses related econometric issues. We consider single agent models, competitive equilibrium models and dynamic games. The methods are illustrated with descriptions of empirical studies which have applied these techniques to problems in different areas of economics. Programming codes for the estimation methods are available in a companion web page.

This paper provides a critical review of the empirical literature on the relationship between health insurance, labor supply, and job mobility. We review over 50 papers on this topic, almost exclusively written in the last 10 years. We reach five conclusions. First, there is clear and unambiguous evidence that health insurance is a central determinant of retirement decisions. Second, there is fairly clear evidence that health insurance is not a major determinant of the labor supply and welfare exit decisions of low income mothers. Third, there is fairly compelling evidence that health insurance is an important factor in the labor supply decisions of secondary earners. Fourth, while there is some division in the literature, the most convincing evidence suggests that health insurance plays an important role in job mobility decisions. Finally, there is virtually no evidence in the literature on the welfare implications of these results. We present some rudimentary calculations which suggest that the welfare costs of job lock are likely to be modest. Our general conclusion is that health insurance has important

This paper addresses how changing the admission and financial aid rules at colleges affect future earnings. In order to complete this task, I estimate a model which includes decisions by individuals as to where to submit applications, which school to attend, and what field to study as well as decisions by schools as to which students to accept and how much financial aid to offer. Throughout, individuals have rational expectations and maximize the present value of lifetime utility, recognizing the dependence of future utility on choices made today. By estimating the whole process it is possible to see how the decision-making behavior, and the corresponding future earnings associated with these decisions, would be affected by changing the admission and financial aid rules.

incentives affect retirement behavior. We use the Health and Retirement Survey (HRS) to examine the impact of Social Security incentives on male retirement. We implement forward-looking models whereby individuals consider the incentives to work in all future years. We find that forward-looking incentive measures for Social Security are significant determi-nants of retirement. We also find that private pension incentives have roughly similar effects. Our findings suggest that Social Security policies that increase the incentives to work at older ages can significantly reduce the labor force exit rate of older workers. I.

Abstract We empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time-inconsistent preferences. Using panel data on the choices of single women with children from the NLSY 1979, we provide estimates of the degree of time-inconsistency, and of its influence on the welfare take-up decision. With these estimates, we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions, and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements.

This paper analyzes a puzzling aspect of retirement behavior known as “unretirement, ” in which retirees appear to reverse their retirement decisions and return to work. I explore two possible explanations: 1) unretirement transitions are largely unexpected, resulting from failures in planning or financial shocks; and 2) unretirement transitions are an expected part of a more complex retirement process. Using data from the Health and Retirement Study, I show that nearly one-half of retirees follow a nontraditional retirement path that involves partial retirement or unretirement, and that 24 percent of retirees later unretire. The unretirement rate rises as high as 36 percent among the youngest retirees. Using data on expectations and realizations of work during retirement, I show that unretirement was anticipated for the vast majority (80 percent) of those returning to work. Most retirees formed accurate expectations about working after retirement, and only nine percent expected not to work but in fact did so. If anything, expectations err on the side of excessive pessimism about retirement rather than uninformed optimism. In short, the evidence suggests unretirement is not predominantly a response to negative shocks arriving after retirement, but instead represents an alternative retirement path, much like partial retirement.

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Using data from the Health and Retirement Survey and the Assets and Health Dynamics of the Oldest Old survey, we estimate the stochastic process that determines both the distribution and dynamics of health care costs. We find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent AR(1) process. We also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs. Simulating this model, we find that in any given year 0.1 % of households receive a health cost shock with a present value of at least $125,000.