ESTIMATING DYNAMIC-MODELS OF QUIT BEHAVIOR - THE CASE OF MILITARY REENLISTMENT

We estimate the effect of financial incentives for reenlistment on mil itary retention rates using a stochastic dynamic programming model. We show that the computational burden of the model is relatively low eve n when estimated on panel data with unobserved heterogeneity. The esti mates of the model show strong effects of military compensation, espec ially of retirement pay, on retention rates. We also compare our model with simpler-to-compute models and find that all give approximately t he same fit but that our dynamic programming model gives more plausibl e predictions of policy measures that affect military and civilian com pensation at future dates.