Misclassification of the Dependent Variable in Binary Choice Models: Evidence from Five Latin American Countries
AbstractMisclassification of the dependent variable in binary choice models can result in inconsistency of the parameter estimates. I estimate probit models that treat misclassification probabilities as estimable parameters for three labor market outcomes: formal sector employment, pension contribution and job change. I use Living Standards Measurement Study data from Nicaragua, Peru, Brazil, Guatemala, and Panama. I find that there is significant misclassification in eleven of the sixteen cases that I investigate. If misclassification is present, but is ignored, estimates of the probit parameters and their standard errors are biased toward zero. In most cases, predicted probabilities of the outcomes are significantly affected by misclassification of the dependent variable. Even a moderate degree of misclassification can have substantial effects on the estimated parameters and on many of the predictions.
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Bibliographic InfoPaper provided by University of Delaware, Department of Economics in its series Working Papers with number 07-05.
Length: 33 pages
Date of creation: Mar 2007
Date of revision:
Publication status: Published in Applied Economics
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Postal: Purnell Hall, Newark, Delaware 19716
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Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
More information through EDIRC
Data Quality; Misclassification; Formal Sector; Pension Contributor; Job Change; Nicaragua; Peru; Brazil; Guatemala; Panama;
Other versions of this item:
- Evangelos Falaris, 2011. "Misclassification of the dependent variable in binary choice models: evidence from five Latin American countries," Applied Economics, Taylor and Francis Journals, vol. 43(11), pages 1315-1327.
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Job, Occupational and Intergenerational Mobility; Promotion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-21 (All new papers)
- NEP-DCM-2007-04-21 (Discrete Choice Models)
- NEP-ECM-2007-04-21 (Econometrics)
- NEP-LAM-2007-04-21 (Central & South America)
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