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The Tobit model with a non-zero threshold

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  • Richard T. Carson
  • Yixiao Sun

Abstract

The standard Tobit maximum likelihood estimator under zero censoring threshold produces inconsistent parameter estimates, when the constant censoring threshold γ is non-zero and unknown. Unfortunately, the recording of a zero rather than the actual censoring threshold value is typical of economic data. Non-trivial minimum purchase prices for most goods, fixed cost for doing business or trading, social customs such as those involving charitable donations, and informal administrative recording practices represent common examples of non-zero constant censoring threshold where the constant threshold is not readily available to the econometrician. Monte Carlo results show that this bias can be extremely large in practice. A new estimator is proposed to estimate the unknown censoring threshold. It is shown that the estimator is superconsistent and follows an exponential distribution in large samples. Due to the superconsistency, the asymptotic distribution of the maximum likelihood estimator of other parameters is not affected by the estimation uncertainty of the censoring threshold. Copyright Royal Economic Society 2007

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Bibliographic Info

Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 10 (2007)
Issue (Month): 3 (November)
Pages: 488-502

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Handle: RePEc:ect:emjrnl:v:10:y:2007:i:3:p:488-502

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Cited by:
  1. Emin M. Dinlersoz & Mehmet Yorukoglu, 2012. "Information and Industry Dynamics," American Economic Review, American Economic Association, vol. 102(2), pages 884-913, April.
  2. I. Bateman & R. Brouwer & S. Ferrini & M. Schaafsma & D. Barton & A. Dubgaard & B. Hasler & S. Hime & I. Liekens & S. Navrud & L. De Nocker & R. Ščeponavičiūtė & D. Semėnienė, 2011. "Making Benefit Transfers Work: Deriving and Testing Principles for Value Transfers for Similar and Dissimilar Sites Using a Case Study of the Non-Market Benefits of Water Quality Improvements Across E," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(3), pages 365-387, November.
  3. Cory Koedel & Julian Betts, 2009. "Value-Added to What? How a Ceiling in the Testing Instrument Influences Value-Added Estimation," NBER Working Papers 14778, National Bureau of Economic Research, Inc.
  4. Darius Lakdawalla & Wesley Yin, 2009. "Insurer Bargaining and Negotiated Drug Prices in Medicare Part D," NBER Working Papers 15330, National Bureau of Economic Research, Inc.
  5. Kim, Younhee & Yang, Bongmin, 2011. "Relationship between catastrophic health expenditures and household incomes and expenditure patterns in South Korea," Health Policy, Elsevier, vol. 100(2), pages 239-246.
  6. Jakob R. Munch & Daniel X., 2008. "Decomposing Firm-level Sales Variation," EPRU Working Paper Series 2009-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Jun 2009.

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