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The Effect of Ignoring Heteroscedasticity on Estimates of the Tobit Model

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  • Charles Brown
  • Robert Moffitt

Abstract

We consider the sensitivity of the Tobit estimator to heteroscedasticity. Our single independent variable is a dummy variable whose coefficient is a difference between group means, and the error variance differs between groups. Heteroscedasticity biases the Tobit estimate of the two means in opposite directions, so the bias in estimating their difference can be significant. This bias is not monotonically related to the true difference, and is greatly increased if the limit observations are not available. Perhaps surprisingly, the Tobit estimates are sometimes more severely biased than are OLS estimates.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0027.

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Date of creation: Jan 1983
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Handle: RePEc:nbr:nberte:0027

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  1. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 3R, Cowles Foundation for Research in Economics, Yale University.
  2. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, Elsevier, vol. 11(2-3), pages 247-258.
  3. Arabmazar, Abbas & Schmidt, Peter, 1981. "Further evidence on the robustness of the Tobit estimator to heteroskedasticity," Journal of Econometrics, Elsevier, Elsevier, vol. 17(2), pages 253-258, November.
  4. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, Econometric Society, vol. 41(6), pages 997-1016, November.
  5. Olsen, Randall J, 1982. "Distributional Tests for Selectivity Bias and a More Robust Likelihood Estimator," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 223-40, February.
  6. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, Econometric Society, vol. 49(2), pages 505-13, March.
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Cited by:
  1. Bundervoet, Tom, 2010. "Assets, Activity Choices, and Civil War: Evidence from Burundi," World Development, Elsevier, Elsevier, vol. 38(7), pages 955-965, July.
  2. Melvin Stephens Jr., 2002. "'3rd of tha Month': Do Social Security Recipients Smooth Consumption Between Checks?," NBER Working Papers 9135, National Bureau of Economic Research, Inc.
  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.

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