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# EC968: Panel Data Methods

## Cheti Nicoletti Examples of exam questions

Ex 1 Answer all parts of this question. The survival function for the exponential model for continuous time duration is S(t)=exp(- t). a. [10 marks] Derive the hazard function and discuss how the survival and hazard functions vary with time. b. [10 marks] Explain how to allow for difference in characteristics into the hazard function. Compute the ratio between the hazard functions of two individuals with equal durations but different vectors of characteristics X and Z. Discuss how the two hazard functions would differ if the two individuals were identical expect for a variable XK taking value (c+1) for the first individual and c for the second individual.

a. The hazard function is equal to P and does not vary with survival time. The survival function is such that S(0) = 1, S(g) = 0 and its slope is negative throughout. b. The characteristics can be included in the model as P | exp(FdX). The ratio is exp(FdX)/ exp(FdZ)=exp(Fd(X-Z)) exp(FdX)/exp(FdZ)=exp(FK) where FK is the coefficient of the variable xK exp(FK) is the proportionate change in the hazard given a unit change in xK FK is the effect on the log hazard rate of a unit change in xK (semi-elasticity of the hazard w.r.t. xK.).

Table Estimated parameters of two hazard regression models of criminal recidivism Exponential model Cox model F |t| exp(F) F |t| exp(F) Received financial aid when released from prison* Age at release (years) Race is black* Had prior work experience* Married* Released on parole* Number of previous arrests Age at earliest arrest (years) Education (years) Had a job immediately after release* Constant

0.325 0.067 0.280 0.117 0.414 0.037 0.095 0.070 0.263 0.039 3.860

1.690 2.890 0.900 0.530 1.080 0.190 0.210 2.300 1.960 1.760 2.500

0.723 0.935 1.323 0.890 0.661 0.964 1.100 1.073 0.769 0.962 0.021

0.337 0.069 0.286 0.122 0.426 0.035 0.101 0.071 0.264 0.039

1.760 2.940 0.920 0.550 1.110 0.180 3.360 2.350 1.960 1.780

0.714 0.933 1.331 0.885 0.653 0.966 1.106 1.074 0.768 0.962

Adapted from Allison, P.A. (1984), Survival Analysis, Sage, p. 27. *: dummy variable. |t| : absolute value of the ratio of estimated parameter to standard error. |t|>1.96 corresponds to a p-value lower than 0.05.

Ex 1 Second part Answer all parts of this question. The table above presents estimates of an Exponential and a Cox model of the hazard of re-arrest following release from prison for a sample of 432 men released from Maryland prisons. The hazard function of a Cox model is equal to h(t)= 0(t) exp( X) where 0(t) is the baseline hazard. [10 marks] Discuss theoretical differences between the Cox and Exponential model especially in terms of duration dependence (or baseline hazard). [10 marks] Considering the Exponential model estimates, discuss the estimated relationship between the hazard rate of criminal recidivism and each of the explanatory variables, paying particular attention to the magnitude of the effects and their statistical significance. [10 marks] Is the Cox model a proportional hazard (PH) model or an accelerated failure time (AFT) model? Is the Exponential model a PH or a AFT model?

The Exponential model imposes a constant baseline hazard, whereas the Cox model is much more flexible because it allows for any baseline hazard shape. Or the Cox model allows for flexible time duration while the Exponential model assumes there is not time duration. Need a discussion for each variable in terms of significance, sign and its magnitude possibly interpreting exp(FK) as the proportionate change in the hazard given a unit change in xK or by interpreting F K as the semi-elasticity of the hazard function w.r.t. xK Both the Exponential and Cox model are proportional hazard model and the Exponential model is also an AFT model.

Ex 2 Answer all parts of this question. Consider a random inflow sample of 300 individuals for whom you observe the waiting time for a bus. The waiting times can range from 0 to K and are characterised by a failure function F(t) = t/O for 0 e t e O. a) [10 marks] Derive an expression for the survivor function S(t) and, with reference to a graph of S(t) against t, verify that the function satisfies the key properties of a survivor function and discuss its shape. b) [10 marks] Find the median survival time. Show your reasoning.

a) Survivor function S(t) = 1 F(t) = 1 (t/O) over the same range for t. Key properties. S(0) = 1, S(O) = 0, and Sd(t) = (1/O) e 0. Straight line graph. b) Median m satisfies S(m) = 1 (m/O) = 0.5. Hence m = O/2.

EX 2 second part c) [10 marks] Derive an expression for the density function f(t) and, with reference to a graph of f(t) against t, discuss its shape. d) [10 marks] Derive an expression for the hazard function U(t) and discuss how its shape varies with survival time. e) [10 marks] Suppose that you can observe the waiting time for 250 individuals, whereas for the remaining 50 individuals you only know that their waiting time is longer than c. Derive an expression for the sample likelihood that is appropriate for this right censored sample.

c) Density function f(t) = Sd(t) = Fd(t) = (1/O). Uniform density! Graph of constant height 1/O over interval. d) Hazard function U(t)= f(t) / S(t) = 1/(O t). Shape Ud(t) = 1/(O t)2 > 0 for 0 < t < O. Also Ut (t) = 2/(O t)3 > 0 for 0 < t < O. I.e. positive (and increasing) slope. e) Likelihood function is given by

Ex 3 Consider the following hazard model (1) Exponential hazard model (t,X)=exp(X ) (2) Log-normal hazard model (3) Gompertz hazard model (t,X)=exp(X )exp( t) Answer all parts of this question: (a) State which of the following hazard functions are proportional hazard models and explain your reasoning. (b) Consider the Gompertz model and explain how the hazard depends on the duration for K > 0, K =0 and K <0 (c) The Gompertz model includes as special case the exponential hazard model. Explain why. (d) Derive the survival function for the exponential model in terms of the hazard rate.

Ex 3 Answers (a) Models (1) and (3) are proportional hazard model because (b) K > 0: hazard monotonically increasing in t. K = 0: hazard constant for all t (Exponential) K < 0: hazard monotonically decreasing in t. (c) If K = 0, then (t,X)=exp(X )exp( t)=exp(X ) (d)

Ex 3 second part Consider the following duration model ln(T) = F*dX + z, or Y = Q + Wu, or (Y Q)/W = u A log-normal duration model is a model where u is normally distributed. (d) Can you explain what F* measures in term of duration (e) Consider the exponential model (1). Can you explain what F measures in term of hazard function duration (f) Consider the Gompertz model (3). Can you explain what F measures in term of hazard function duration

Ex 3 second part: Answers (d) Can you (e) FK is the effect on the log duration rate of a unit change in xK (semi-elasticity of the duration w.r.t. xK.). (d) FK is the effect on the log hazard rate of a unit change in xK (semi-elasticity of the hazard w.r.t. xK.). (f) FK is still the effect on the log hazard rate of a unit change in xK (semi-elasticity of the hazard w.r.t. xK.).