Semi-parametric Models for Satisfaction with Income

An overview is presented of some parametric and semi-parametric models, estimators, and specification tests that can be used to analyze ordered response variables.In particular, limited dependent variable models that generalize or-dered probit are compared to regression models that generalize the linear model.These techniques are then applied to analyze how self-reported satisfaction with household income relates to household income, family composition, and other background variables.Data are drawn from the 1998 wave of the German Socio-Economic Panel.The results are used to estimate equivalence scales and the cost of children.We find that the standard ordered probit model is rejected, while some semi-parametric specifications survive specification tests against nonpara-metric alternatives.The estimated equivalence scales, however, are often similar for the parametric and semi-parametric specifications.