Heteroskedasticity-Robust Elasticities in Logarithmic and Two-Part Models
AbstractLogarithmic models are widely used to study highly skewed positive outcomes, either alone or in combination with an equation that first distinguishes between zero and non-zero values (the two part model). A well-known drawback of such models is that to obtain marginal effects that pertain to the arithmetic mean, rather than the mean of logs, we must exponentiate, and this retransformation is complicated in the presence of heteroskedasticity. This paper presents a simple method for correcting estimated elasticities for the effects of heteroskedasticity, in both log-linear and log-log (constant elasticity) equations. An example, drawing on Bulgarian farm survey data, demonstrates that this correction leads to significantly different estimates of the elasticity of expenditures on agricultural inputs with respect to land area and the age of the household head.
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Bibliographic InfoPaper provided by American University, Department of Economics in its series Working Papers with number 2007-19.
Length: 13 pages
Date of creation: Aug 2007
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Web page: http://www.american.edu/cas/economics/
Other versions of this item:
- Tom Hertz, 2010. "Heteroskedasticity-robust elasticities in logarithmic and two-part models," Applied Economics Letters, Taylor & Francis Journals, vol. 17(3), pages 225-228.
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- Toni Mora & Joan Gil & Antoni Sicras-Mainar, 2012.
"The influence of BMI, obesity and overweight on medical costs: a panel data approach,"
2012/37, Institut d'Economia de Barcelona (IEB).
- Toni Mora & Joan Gil & Antoni Sicras-Mainar, 2012. "The Influence of BMI, Obesity and Overweight on Medical Costs: A Panel Data Approach," Working Papers 2012-08, FEDEA.
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