- Biondi 2014 Exploratory Behaviur Chimango
- 10.1.1.53
- What is the Expectation Maximization Algorithm?
- Deep Convolutional Neural Fields for Depth Estimation From a Single Image(CVPR2015)
- practicalgarchfinal
- Probability Distributions Offshore Wind Speeds
- US Federal Reserve: 200325pap
- MachineLearning-Lecture03.pdf
- 12HWsol.pdf
- Choice Models in Marketing Economic Assumptions, Challenges and Trends
- Clauset, A Et Al_2009 - Power-Law Distributions in Empirical Dada
- Stat
- Box-Cox-JRSS-1964.pdf
- We i Bull Parameters Estimation
- A Test of Concepts Inherent in Experience Based Setting Managemen
- DepmixS4 Package for R
- Ishigami 2015
- asymptotic
- Wooldridge
- Brunnermeier
- Chapter 7
- Ba Yes i an Conditional Co Integration
- Wang
- 1996 the Information Content of Accounting Numbers as Earnings Predictors One Year Ahead the Case of Hong Kong
- Classification
- Empirical Methods - Esther Duflo 2002
- RooFit Users Manual 2.91-33
- nihms469426_2
- An Analysisi of the Sypplier Selection
- Bayesian Estimation
- Sapiens: A Brief History of Humankind
- Yes Please
- The Unwinding: An Inner History of the New America
- Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future
- Dispatches from Pluto: Lost and Found in the Mississippi Delta
- The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution
- John Adams
- Devil in the Grove: Thurgood Marshall, the Groveland Boys, and the Dawn of a New America
- This Changes Everything: Capitalism vs. The Climate
- Grand Pursuit: The Story of Economic Genius
- A Heartbreaking Work Of Staggering Genius: A Memoir Based on a True Story
- The Emperor of All Maladies: A Biography of Cancer
- The Prize: The Epic Quest for Oil, Money & Power
- Team of Rivals: The Political Genius of Abraham Lincoln
- The New Confessions of an Economic Hit Man
- The World Is Flat 3.0: A Brief History of the Twenty-first Century
- Rise of ISIS: A Threat We Can't Ignore
- The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
- Smart People Should Build Things: How to Restore Our Culture of Achievement, Build a Path for Entrepreneurs, and Create New Jobs in America
- How To Win Friends and Influence People
- Steve Jobs
- Angela's Ashes: A Memoir
- Bad Feminist: Essays
- The Light Between Oceans: A Novel
- Leaving Berlin: A Novel
- The Silver Linings Playbook: A Novel
- The Sympathizer: A Novel (Pulitzer Prize for Fiction)
- Extremely Loud and Incredibly Close: A Novel
- You Too Can Have a Body Like Mine: A Novel
- The Incarnations: A Novel
- Life of Pi
- The Love Affairs of Nathaniel P.: A Novel
- A Man Called Ove: A Novel
- The Master
- Bel Canto
- We Are Not Ourselves: A Novel
- The First Bad Man: A Novel
- The Rosie Project: A Novel
- The Blazing World: A Novel
- The Flamethrowers: A Novel
- Brooklyn: A Novel
- The Art of Racing in the Rain: A Novel
- Wolf Hall: A Novel
- The Wallcreeper
- Interpreter of Maladies
- The Kitchen House: A Novel
- Beautiful Ruins: A Novel
- The Bonfire of the Vanities: A Novel
- Lovers at the Chameleon Club, Paris 1932: A Novel
- The Perks of Being a Wallflower
- A Prayer for Owen Meany: A Novel
- The Cider House Rules
- Everything Is Illuminated

Carlos Lamarche, Economics, OU

**Limited Dependent Variable Models
**

Lecture 12

This lecture introduces limited dependent variables models. The main goal of the lecture is to brieﬂy present the models to give you an introduction for empirical work. Probit and Logit Models: Suppose that we would like to explain a binary outcome e.g. yi = 1 if the governor was elected and yi = 0 otherwise. It turns out that the binary outcome may be explained by some observable variables e.g. taxes, state’s unemployment rate, etc. Formally the model is, yi = x′i β + ui where xi = (1, xi1 , ...xip )′ is a vector of independent variables. Since the dependent variable is a binary variable, β cannot be interpreted as a marginal eﬀect. But since, E(y|x) = P (y = 1|x) × 1 + P (y = 0|x) × 0 = P (y = 1|x) we can write the conditional mean of y as P (y = 1|x) = E(y|x) = x′ β which means that βj measures the change in the probability of success (for example, being elected) when xj changes (for example, when the taxes are decreases by 1 percent). We can estimate the conditional linear model, but the predicted value can ˆ lie outside the [0,1] interval. The interpretation of x′ β as an estimated probability does not make more sense. Instead of considering a linear probability model, we can consider models of the form P (y = 1|x) = F (x′ β) The idea is to transform x′ β into a probability, so we must choose F . There are two classical options: Probit or Logit. Let me give you some details about these choices. The Probit strategy is to choose F to be standard normal

x′ β i

P (y = 1|x) =

Φ(x′i β)

=

−∞

z2 1 √ e− 2 dz 2π

Economics 4233 - Fall 2011

Carlos Lamarche, Economics, OU

Note that Φ(·) is the normal cumulative distribution function. The partial eﬀect of the j th covariate is non linear, ∂Pi = φ(x′i β) × βj ∂xij where phi(·) is the normal probability distribution function. On the other hand, the Logit chose F to be logistic distribution, exi β P (y = 1|x) = ′ 1 + exi β In this model, the partial eﬀect is ∂Pi exi β × βj = ′ ∂xij (1 + exi β )2 Estimation of Probit and Logit Models: OLS and WLS techniques break down to estimate the non linear function E(y|x), so we must use the maximum likelihood estimator (MLE). Let me introduce the new method of estimation, and then we consider the case of interest. Let a random sample of iid variables {y1, y2 , ...yn }, with yi ∼ f (y; θ). For example, f is a normal standard variable, and θ is both the mean µ and the variance σ 2 . The joint distribution is the product of the densities,

n

′ ′

L(θ; y) =

i=1

f (yi ; θ)

**Taking logs, we obtain the log-likelihood function
**

n

Li = logL(θ; y) =

logf (yi; θ)

i=1

ˆ The value of θ that maximizes the log-likelihood function is called the MLE, θ. The density function of the binary variable yi given xi is f (yi|xi ; β) = [F (x′i β)]yi [1 − F (x′i β)]1−yi Therefore, the log-likelihood function is

n

L=

i=1

{yi logF (x′i β) + (1 − yi )log(1 − F (x′i β))}

Economics 4233 - Fall 2011

Carlos Lamarche, Economics, OU

ˆ The MLE is β, the value that maximizes the log-likelihood function. If F is logit, ˆ is the logit estimator, and if F is probit, then β is the probit estimator. ˆ then β Example: We estimate a labor participation model using Mroz.dta. The variable inlf , which means “in the labor force”, is a binary variable indicating the labor force participation: 1 if the woman reports working for a wage, and 0 otherwise. The probit model is Probit(inlf = 1) = −1.88 − 0.015nwif eincit + 0.12educit + 0.12expit − 0.002expsqit (0.29) (0.04) (0.024) (0.018) (0.001) where nwif einc denotes other sources of income, including husband’s earnings. The signs and standard errors can be interpreted as before, but the marginal eﬀects are not directly derived from the equation. For example, ˆ ∂ P (inlf = 1) = −0.006 ∂nwif einc ˆ ∂ P (inlf = 1) = 0.05 ∂educ saying for example that if the women spends one more year in school, the probability of participating in the labor market increases 0.05. Tobit Model and Censored Models: Consider a case where the dependent variable is zero for a high fraction of the population, but continuous on positive values. For example, number of cigarettes per week, spends on alcohol per week, etc. y ∗ = β0 + β1 x + u y = max{0, y ∗} u|x ∼ N (0, σ 2)

You may recognize that the conditional mean model is diﬀerent than the conditional mean models presented in previous lectures. The model can be estimated by considering the log-likelihood function that is equal to

n

L=

i=1

{1{yi = 0}log(1 − Φ(xi β/σ)) + 1{yi > 0}log((1/σ)φ[(yi − xi β/σ))}

The binary variable 1{·} takes the value 1 if yi = 0, and takes a value of 0 otherwise. ˆ The βs and σ s are the MLE. ˆ

Economics 4233 - Fall 2011

Carlos Lamarche, Economics, OU

Let’s now consider the censored data case. Suppose we have the following labor supply model, as an example, of the form h∗ = β0 + β1 wage + β2 kids + vi i The variable h∗ is a latent variable, and h∗ < 0 denotes hours of leisure. Why the i i model contains a latent variable? From microeconomics theory, we know that if the reservation wage is higher than the market wage rate, the individual i will consume leisure. So, we will have hi = 0 if h∗ ≤ 0, and h∗ if h∗ > 0. i i i INSERT FIGURE The graph indicates a problem: since OLS is sensitive to the observations that we are omitting, the estimate of the parameter of interest β is inconsistent. Heckman Sample Selection Problem and Correction: The sample selection problem is similar to the previous case. There is a bias that arises from using a nonrandomly selected samples to estimate behavioural assumptions. Therefore, sample selection will produce a biased estimator, explained by the fact that we are omitting a variable (called ‘inverse Mills ratio’). Consider, logwi = x′i β + ui where wi is wages of women i, xi are covariates that possibly explain wages such us education, experience, etc. Consider an additional equation,

′ Pi = 1 {zi γ + εi > 0}

where 1 {·} is an indicator variable that takes 1 if the event is true, and zi are covariates that explain women’s decision to work e.g. number of children. The key point is that u and ε are not independent e.g. E(uε) = σuε . Why? There are factors not observed by the econometrician that aﬀects the decision of participating in the labor market and the determination of wages. Let’s write σuε ui = 2 εi + vi σε Note that,

′ E(logwi |xi , Pi = 1) = x′i β + E(ui |εi > −zi γ) ε εi zi γ σuε | >− = x′i β + 2 E σε σε σε σε ′ σuε φ(zi γ/σε ) = x′i β + 2 ′ σε Φ(zi γ/σε )

Economics 4233 - Fall 2011

Carlos Lamarche, Economics, OU

which says that the OLS model is biased. But if we estimate the model by adding the omitted variable, the estimator is consistent.

′ logwi = x′i β + δλ (zi γ/σε ) + ui 2 ˆ where λ(·) = φ(·)/Φ(·) is the inverse Mills ratio. Note that δ is an estimate of σuε /σε . Therefore, the Heckman procedure can be summarized as follows (for this example):

1. Probit of participation in the labor force on the vector of determinants of decision to work. Then, obtain estimates of γ/σε . 2. Construct Mills ratio (the additional covariate). 3. Estimate the equation, and test for sample selectivity bias H0 : δ = 0 using a t-test. If t > tc (α = 0.5), we may conclude that we have a non-random sample of women. Example: We use data on married women (Mroz.dta). In order to correct for sample selection, we need to ﬁrst estimate a probit model for labor participation. probit(inlf = 1) = 0.270 − 0.012nwif einci + 0.131educi + 0.123expi − 0.002expsqi (0.509) (0.005) (0.025) (0.019) (0.0006) Then, in the second stage, after we estimate the inverse Mills ratio λ, we regress ˆ log(wage) = −0.578 + 0.109educi + 0.044expi − 0.0009expsqi + 0.032λ (0.307) (0.016) (0.016) (0.0004) (0.134) Note that we fail to reject H0 : δ = 0, therefore there is no evidence of sample selection in estimating the wage oﬀer equation for married women.

- Biondi 2014 Exploratory Behaviur ChimangoUploaded byArco Iris Hija del Jaguar
- 10.1.1.53Uploaded bySyed Rahman
- What is the Expectation Maximization Algorithm?Uploaded byslash020
- Deep Convolutional Neural Fields for Depth Estimation From a Single Image(CVPR2015)Uploaded byn2ziaee
- practicalgarchfinalUploaded byGideon
- Probability Distributions Offshore Wind SpeedsUploaded byRodolfo Jaeger
- US Federal Reserve: 200325papUploaded byThe Fed
- MachineLearning-Lecture03.pdfUploaded bySethu S
- 12HWsol.pdfUploaded byMarco Espinosa
- Choice Models in Marketing Economic Assumptions, Challenges and TrendsUploaded byrajv88
- Clauset, A Et Al_2009 - Power-Law Distributions in Empirical DadaUploaded bycelocunha
- StatUploaded bydmp130
- Box-Cox-JRSS-1964.pdfUploaded byParag Shetty
- We i Bull Parameters EstimationUploaded byBayronPalacio
- A Test of Concepts Inherent in Experience Based Setting ManagemenUploaded byOscar Matutem
- DepmixS4 Package for RUploaded byneuromiguel
- Ishigami 2015Uploaded byMarcelo Alves Costa
- asymptoticUploaded byIlham Ait Lakhyar
- WooldridgeUploaded byamudaryo
- BrunnermeierUploaded byPanda Chandhakanond
- Chapter 7Uploaded byPavithran
- Ba Yes i an Conditional Co IntegrationUploaded bytalktome013
- WangUploaded byShanthakumari Rammanathan
- 1996 the Information Content of Accounting Numbers as Earnings Predictors One Year Ahead the Case of Hong KongUploaded bymuhrom
- ClassificationUploaded bySridhar Sundaramurthy
- Empirical Methods - Esther Duflo 2002Uploaded bymoroquito20
- RooFit Users Manual 2.91-33Uploaded byGica Joe
- nihms469426_2Uploaded bySusi Rutmalem
- An Analysisi of the Sypplier SelectionUploaded byMd Sukob
- Bayesian EstimationUploaded by07404510