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Tobit-Model

TobitTobit-Model

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University of Freiburg WS 2007/2008 Alexander Spermann

4. Tobit-Model

1. The Tobit - Model 2. An example
Wooldridge (2003), Introductory Econometrics, 2nd edition, Chap.17.2
Other:
Wooldridge (2002): Econometric Analysis of Cross Section and Panel Data, Chapter 16. Ruud (2000): An Introduction to Classical Econometric Theory, Chapter 28. Greene (2000): Econometric Analysis, 4th edition, Chapter 20.3

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University of Freiburg WS 2007/2008 Alexander Spermann

and 2. dependent variable constrained and 2. not 1. not 2.) ‡ wage changes (2. clustering of observations at the constraint ‡ Examples: ‡ consumption (1.) 3 University of Freiburg WS 2007/2008 Alexander Spermann .) ‡ Labor supply (1.4. Tobit-Model ‡ Problem: special attribute(s) of the dependent variable (DV) 1.

4 Density .4. from below 1 right-censored. top-coded 3 Density 0 1 2 0 . Tobit-Model left. Fringe. clerks.5 5 Distribution of hourly benefits.1.8 0 1 hourly benefits.and right-censoring in the data left-censored.1986. males.dta. 4 command: hist hrbens Distribution of log-wages in West-Germany.5 4 logw_cens 4. 1.2 . IABS01 University of Freiburg WS 2007/2008 Alexander Spermann . $ 2 3 2.5 3 3.6 .

Tobit-Model 2 different sorts of Models ‡ Data censoring ± Earnings variable (IABS) ± Demand for stadium tickets ± Duration in unemployment Corner solutions ± Labor Supply ± Household expenditures on holidays University of Freiburg WS 2007/2008 Alexander Spermann ‡ 5 .4.

4. Figure 28.2 6 University of Freiburg WS 2007/2008 Alexander Spermann . Tobit-Model Censoring in a regression framework Ruud.

± OLS on the unclustered part biased and inconsistent. 7 University of Freiburg WS 2007/2008 Alexander Spermann .4. Tobit-Model ‡ If DV is constrained and if there is clustering ± OLS on the complete sample biased and inconsistent.

Tobit-Model Solution possibility 1: Estimate a Probit Model 1 ® y!¯ 0 ° if y"0 Loses information on y. ®  R y y!¯ ° 0 8 do not throw away information (Tobin 1958) University of Freiburg WS 2007/2008 Alexander Spermann Solution: Tobit-regression .4.

d. W 2 ) y "0 yi* e 0 University of Freiburg WS 2007/2008 Alexander Spermann if if * i 9 . Tobit-Model yi* Trick: introduce a latent variable Assume: linear conditional expectation for latent Var.4. E(y | x) ! x F Assumption: * i ' i y ! x F  Ii ® y yi ! ¯ 0 ° * i * i ' i I i ~ i.i. N(0.

..4. yi ) : i ! 1... 2. Tobit-Model Random sample {(x i . N} Estimation of the parameters of the model: ‡ Non-linear LS estimation ‡ Maximum likelihood method 10 University of Freiburg WS 2007/2008 Alexander Spermann .

Probit-Part For censored observations we have: r(y i ! 0) ! r(y* e 0) i ¨ Ii x i' F ¸ ! r(Ii e  x i' F) ! r © e  ¹ W W º ª ¨ x i' F ¸ ¨ x i' F ¸ ! *© ¹ ! 1 * © ¹ W º W º ª ª University of Freiburg WS 2007/2008 Alexander Spermann 11 .4. Tobit-Model Maximum likelihood estimation: Likelihood-function consists in two parts 1.

Linear part Can formulate a linear model for the part that is uncensored: lim Pr(yi Qp 0 Yi ! y i  Q | yi " 0.4. Q " 0) ! ¨ yi  x 'iF ¸ ¸ x 'iF Q ¸ ¹  *© ¹¹ ! W W º¹ º ª º ¨ lim © Qp 0 © ª ¨ yi © ª 1 ¨ yi  x 'iF ¸ f (I i ) ! J © ¹ W ª W º 12 University of Freiburg WS 2007/2008 Alexander Spermann . Tobit-Model 2.

and Log-Likelihood-function: « ¨ x i' F ¸ » 1 ¨ yi  x i' F ¸ ! — ¬1  * © ¹ ¼— J © ¹ W º ½ yi " 0 W ª W º yi ! 0 ­ ª ln « « 1 ¨ yi  x i' F ¸ » ¨ x i' F ¸ » ! § ln ¬1  * © ¹ ¼  § ln ¬ J © ¹¼ W º ½ yi " 0 ­ W ª W º ½ yi ! 0 ª ­ ‡ ln L is maximized wrt and .4. ‡ FOC yields estimator for 13 ‡ and are asymptotically normal. University of Freiburg WS 2007/2008 Alexander Spermann . Tobit-Model Likelihood. Inference is standard. and .

4. Tobit-Model Data: Dependent Variable: ‡ hours working hours (yearly) of married women 753 Observations 14 ‡ 428 women exchange work for money in the labor market (hours vary in the dataset between 12 and 4950) ‡ 325 women do not work. University of Freiburg WS 2007/2008 Alexander Spermann .

4. Tobit-Model explanatory variables: ‡ age ‡ educ ‡ exper ‡ nwifeinc ‡ kidslt6 ‡ kidsge6 age education in years of schooling experience in actual years of work family income (in 1000$) that is not generated by the woman number of kids age < 6 number of kids 6< age < 18 University of Freiburg WS 2007/2008 Alexander Spermann 15 .

Econometric Analysis of Cross Section and Panel Data (2002) 16 estimated coefficients are to be interpreted as the effect of the regressors on the latent variable. Tobit-Model Estimation of a Tobit-Model (in Stata): Source: Wooldridge.4. University of Freiburg WS 2007/2008 Alexander Spermann .

41 -894.76 65. Tobit-Model Direct comparison of OLS and Tobit output impossible OLS nwifeinc educ exper exper2 age Kidslt 6 Kidsge 6 Constant Log.274 1122.61 -442.02 University of Freiburg WS 2007/2008 Alexander Spermann Dependent variable: hours 17 Ö W .likelihood R2 -3.22 965.31 -3819.67 -0.02 -16.700 -30.78 1330.18 Tobit -8.65 131.266 750.09 0.81 80.45 28.56 -1.48 ---0.09 -32.4.86 -54.

Marginal effect on the latent variable xE y* x xxk .4. Tobit-Model 1.

! F k Slope of dashed line: tobit Slope of solid line: OLS 18 University of Freiburg WS 2007/2008 Alexander Spermann .

Marginal effect on the actual variable xE . Tobit-Model 2.4.

then OLS=Tobit) y Green line!! 0 19 x University of Freiburg WS 2007/2008 Alexander Spermann .y x xxk ¨ xF ¸ ! F k* © ¹ ª W º Probability that an observation is different from zero (if 1.

4. Marginal effect on positive observations xP . Tobit-Model 3.

when changing x.c xE(y | x. we condition on (y>0). 20 University of Freiburg WS 2007/2008 Alexander Spermann . y " 0) ! Fk  Fk ! F k {1  P (c)[c  P (c)]} F k xx k xc Where (c) is called inverse Mills Ratio: ¨ xF ¸ J© ¹ J(c) W P(c) ! ! ª º * (c) ¨ xF ¸ *© ¹ ª W º (c) captures the change in the population.

Marginal effect on the probability. ¨ xF ¸ ¨ xF ¸ r(y " 0 x) ! 1  * ©  ¹ ! * © ¹ ª W º ª W º It follows: x r . Tobit-Model 4. that an observation is uncensored.4.

y " 0 x xxk ¨ xF ¸ F k ! J© ¹ ª W ºW 21 NB: For coefficients 2-4 need choose an appropriate x-vector! University of Freiburg WS 2007/2008 Alexander Spermann .

73 Ö F k . Tobit-Model Comparison OLS . for an average individual): OLS TOBIT ¨ x'F ¸ Fk * © ¹ ª W º 80.65 0. OLS 22 University of Freiburg WS 2007/2008 Alexander Spermann .TOBIT on the basis of the marginal effect on actual DV (example educ.4.604 28.76 48.

23 University of Freiburg WS 2007/2008 Alexander Spermann .4. an additional year of education increases the labor supply by 48.7 hours (for an average individual). OLS underestimates the effect of education on the labor supply (in the average of the explanatory variables). Tobit-Model Interpretation: On average.

4. Tobit-Model ‡ dtobit calculates the four different marginal effects (at the mean of the explanatory variables): 24 University of Freiburg WS 2007/2008 Alexander Spermann .

Tobit-Model 25 University of Freiburg WS 2007/2008 Alexander Spermann .4.

4. Tobit-Model 26 University of Freiburg WS 2007/2008 Alexander Spermann .

Tobit-Model Specification ‡ Unobserved. simultaneity) Ästandard-IV³.4. similar to OLS ‡ Heteroskedasticity. as OLS ‡ Endogeneity (left-out variables. different from OLS 27 University of Freiburg WS 2007/2008 Alexander Spermann . nonormal errors inconsistency. independent heterogeneity not problematic.

two-tiered models (for corner solution problems) 28 University of Freiburg WS 2007/2008 Alexander Spermann . E(Y|x)=exp(xb) CLAD-estimator (for censoring problems) hurdle models.4. Tobit-Model alternatives for Tobit ‡ ‡ ‡ nonlinear estimation. eg.