Testing for Unobserved Heterogeneity in Censored Duration Models: EM Approach

Hiroyuki Kasahara; Hirokazu Matsuyama; Katsumi Shimotsu; Shota Takeishi

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arXiv · 2609.36824

Testing for Unobserved Heterogeneity in Censored Duration Models: EM Approach

Hiroyuki Kasahara·Hirokazu Matsuyama·Katsumi Shimotsu·Shota Takeishi

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Abstract

Ignoring unobserved heterogeneity in duration models biases parameter estimates and invalidates inference, but testing for it is non-regular: the null hypothesis lies on the boundary of the parameter space and some parameters are unidentified under the null. These features render standard asymptotic theory inapplicable. This paper develops an EM test for unobserved heterogeneity in censored Weibull duration models, building on the EM approach of Li, Chen, and Marriott (2009). The test statistic has an asymptotic null distribution equal to the square of max{0, N(0,1)}, hence critical values require neither simulation nor bootstrap, and the test accommodates covariate-dependent censoring of arbitrary form. Monte Carlo simulations compare the EM test with the likelihood ratio test (LRT) of Cho and White (2010), information matrix tests, and Lagrange multiplier tests. The EM test has empirical size close to the nominal level for sample sizes of 500 or more, where the LRT remains markedly conservative and the other tests over-reject. Its size-adjusted power is comparable to that of the LRT and higher than that of the other tests. Because size adjustment requires knowledge of the data-generating process and is unavailable in practice, the EM test attains higher power than the LRT in most designs as the tests would actually be applied. In an application to the Stanford Heart Transplant data, the EM test rejects homogeneity in every covariate specification, whereas the LRT's conclusion depends on a user-chosen set of admissible parameter values and on the specification.

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Hiroyuki Kasahara, Hirokazu Matsuyama, Katsumi Shimotsu, Shota Takeishi. 2026-09-29. Testing for Unobserved Heterogeneity in Censored Duration Models: EM Approach. https://arxiv.org/abs/2609.36824

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