Extending Unobserved Heterogeneity – A Strategy for Accounting for Respondent Perceptions in the Absence of Suitable Data

This research proposes that, in cases where threshold covariates are either unavailable or difficult to observe, practitioners should treat these characteristics as latent, and use simulated maximum likelihood techniques to control for them. Two econometric frameworks for doing so in a more flexible manner are proposed. The finite sample performance of these new specifications are investigated with the use of Monte Carlo simulation. Applications of successively more flexible models are then given, with extensive post-estimation analysis utilised to better assess the likely implications of model choice on conclusions made in empirical research.