The Tobit model with feedback and random effects: A Monte-Carlo study
AbstractWe study a random effects censored regression model in the context of repeated games. Introducing a feedback variable into the model leads to violation of the strict exogeneity assumption, thus rendering the random effects estimator inconsistent. Using the example of contributions to a public good, we investigate the size of this bias in a Monte-Carlo study. We find that the magnitude of the bias is around one per cent when initial values and individual effects are correlated. The rate of censoring, as well as the size of the groups in which subjects interact, both have an effect on the magnitude of the bias. The coefficients of strictly exogenous, continuous regressors remain unaffected by the endogeneity bias. The size of the endogeneity bias in our model is very small compared to the size of the heterogeneity bias, which occurs when individual heterogeneity is not accounted for in estimation of nonlinear models.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-14.
Date of creation: Jul 2009
Date of revision:
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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/economics/cedex/
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Monte-Carlo; Simulation; Random Effects; Censored Regression Model; Public Goods; Heterogeneity; Endogeneity;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
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