On Interaction Effects: The Case of Heckit and Two-Part Models
AbstractInteraction effects capture the impact of one explanatory variable on the marginal effect of another explanatory variable. To explore interaction effects, so-called interaction terms are typically included in estimation specifications. While in linear models the effect of a marginal change in the interaction term is equal to the interaction effect, this equality generally does not hold in non-linear specifications (Ai/Norton 2003). This paper provides for a general derivation of interaction effects in both linear and non-linear models and calculates the formulae of the interaction effects resulting from Heckman’s sample selection model as well as the Two- Part Model, two regression models commonly applied to data with a large fraction of either missing or zero values in the dependent variable. Drawing on a survey of automobile use from Germany, we argue that while it is important to test for the significance of interaction effects, their size conveys limited substantive content. More meaningful, and also more easy to grasp, are the conditional marginal effects pertaining to two variables that are assumed to interact.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 233 (2013)
Issue (Month): 1 (January)
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Truncated regression models; interaction terms;
Other versions of this item:
- Manuel Frondel & Colin Vance, 2012. "On Interaction Effects: The Case of Heckit and Two-Part Models," Ruhr Economic Papers 0309, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
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