3.1 Definition

According to Cameron and Trivedi (2005), duration models (also called survival models) aims at measuring the time spent in a certain state before transitioning to another state. In Econometrics,

  • a state corresponds to the class in which an individual \(i\) is at time \(t\).
  • a transition is movement from one state to another.
  • a duration measures the time spent in a certain state and is also called a spell length.

Since measuring the time until the event is needed for multiple purposes, duration analysis is used in a variety of economic sectors as depicted by the following table.

Economic sector Purpose
Macroeconomics Length of unemployment spells
Insurance Risk analysis to offer a segmented pricing
Engineering Time until a device breaks down
Epidemiology Survival time of a virus
Churn analysis Time until a customer leaves the portfolio

References

Cameron, A. Colin, and Pravin K. Trivedi. 2005. Microeconometrics: Methods and Applications. Edited by Cambridge University Press.