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  • Print publication year: 2009
  • Online publication date: June 2014

11 - Panel estimation

Summary

Economic issues include:

Rational choice theory

Economics and happiness

Econometric issues include:

Heterogeneity bias

Pooling and panel estimation

Data issues include:

Combining cross-sectional and time-series data

The issue

Economic analysis is not confined to the study of money and finance. Some economists use their tools for ‘theoretical imperialism’ – i.e. to analyse issues affecting human happiness and welfare that are usually the focus of sociological and/or psychological analysis. How is such an economic approach justified? Economic imperialists take the basic economic principle of balancing benefits and costs and apply it to some of the decisions that people make every day, e.g. choices about drug use, criminal behaviour, decisions to get married and/or divorced etc. The idea is that people engage in certain behaviours, even ostensibly anti-social or destructive behaviours, because the benefits outweigh the costs. This is the essence of the rational choice theory made famous by Gary Becker.

Other economists have also used economic tools to illuminate social issues and problems. In this chapter we illustrate how economics and econometrics can be used to illuminate an area of family life that has been the focus of many analyses by economists: marriage and divorce. In this chapter, we focus on divorce data from 45 US states over the period 2002–4 so our data set has both a spatial/geographical dimension and a temporal dimension.

Further reading
Books
Becker, G. (1991) A Treatise on the Family, Cambridge MA: Harvard University Press.
Kahneman, D., Diener, E. and Schwarz, N. (2003) Well-Being: Foundations of Hedonic Psychology, New York: Russell Sage Foundation.
Layard, R. (2005) Happiness: Lessons from a New Science, London: Allen Lane/Penguin.
Lunn, P. (2008) Basic Instincts: Human Nature and the New Economics, London: Marshall Cavendish Business.
Wooldridge, J. M. (2003) Introductory Econometrics – A Modern Approach (2nd edition), Thomson South-Western, Chapters 7 and 14.
Academic articles and working papers
Burgess, S., Propper, C. and Aassve, A. (2003) ‘The role of income in marriage and divorce transitions among young Americans’, Population Economics, vol. 16, no. 3, 455–75.
Edlund, L. (2005) ‘Sex and the City’, Scandinavian Journal of Economics, vol. 107, no. 1, 25–44.
Gautier, P. A., Svarer, M. and Teulings, C. N. (2005) ‘Marriage and the City’, CEPR Discussion Paper No. 4939, Centre for Economic Policy Research, London.
Kahneman, D. and Tversky, A. (1979) ‘Prospect theory – an analysis of decision under risk’, Econometrica, vol. 47, no. 2, 263–92.
Rowthorn, R. (1999) ‘Marriage and trust: some lessons from economics’, Cambridge Journal of Economics, vol. 23, no. 5, 661–91.
Stutzer, A. and Frey, B. S. (2006) ‘Does marriage make people happy, or do happy people get married?’ Journal of Socio-Economics, vol. 35, no. 2, 326–47.
Tversky, A. and Kahneman, D. (1986) ‘Rational choice and the framing of decisions’, Journal of Business, vol. 59, no. 4, 251–78.
Wilson, C. M. and Oswald, A. J. (2005) ‘How does marriage affect physical and psychological health, a survey of longitudinal evidence’, Institute for the Study of Labour Discussion Paper, IZA Discussion Paper No. 1619.
Newspaper articles
The Economist (2008) ‘Divorce and economic growth: negatively correlated’, 24 July 2008.