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Mixed proportional hazard models with continuous finite mixture unobserved heterogeneity: an application to Canadian firm survival
Author(s) -
Huynh Kim,
Voia Marcel
Publication year - 2017
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.2225
Subject(s) - econometrics , proportional hazards model , mixture model , economics , hazard ratio , mathematics , hazard , statistics , survival analysis , biology , ecology , confidence interval
This paper proposes a methodology that accounts for the selection effect due to non‐random entry in duration models using latent‐class models. A mixed proportional hazard model with continuous finite mixture unobserved heterogeneity (MPH‐CFM) is introduced to correct for the potential bias induced by the selection effect. Conditions for identification, consistency, and asymptotic normality of the MPH‐CFM are provided. The estimator is used to investigate the duration of new entrant Canadian manufacturing firms. For the current application, the MPH‐CFM is compared with alternative duration models and found to be superior. Empirically, the results indicate that there are two classes of firms. Class I starts with high hazard and decreases non‐monotonically while Class II has a negligible hazard. These empirical results can be used to understand alternative models of firm dynamics. Copyright © 2017 John Wiley & Sons, Ltd.