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.