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New Wine in Old Bottles: A Sequential Estimation Technique for the LPM

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Author Info
William C. Horrace (Syracsue University)
Ronald L. Oaxaca (University of Arizona)

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Abstract

The conditions under which ordinary least squares (OLS) is an unbiased and consistent estimator of the linear probability model (LPM) are unlikely to hold in many instances. Yet the LPM still may be the correct model or, perhaps, justified for practical reasons. A sequential least squares (SLS) esti-mation procedure is introduced that may outperform OLS in terms of finite sample bias and yields a consistent estimator. Monte Carlo simulations reveal that SLS outperforms OLS, probit and logit in terms of mean squared error of the predicted probabilities. An empirical example is provided.

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Publisher Info
Paper provided by EconWPA in its series Econometrics with number 0206002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 43 pages
Date of creation: 19 Jun 2002
Date of revision: 11 May 2003
Handle: RePEc:wpa:wuwpem:0206002

Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 43; figures: included. A new estimation technique for the LPM model
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Related research
Keywords: Linear Probability Model; Sequential Least Squares; Consistency; Monte Carlo;

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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References listed on IDEAS
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  3. Amemiya, Takeshi, 1977. "Some Theorems in the Linear Probability Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 645-50, October. [Downloadable!] (restricted)
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  1. Stephen L. Ross & Yves Zenou, 2006. "Are Shirking and Leisure Substitutable? An Empirical Test of Efficiency Wages Based on Urban Economic Theory," Working papers 2006-21, University of Connecticut, Department of Economics. [Downloadable!]
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