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Removing Specification Errors from the Usual Formulation of Binary Choice Models

Author

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  • P.A.V.B. Swamy

    (Federal Reserve Board (Retired), Washington, DC 20551, USA
    Current Address: 6333 Brocketts Crossing, Kingstowne, VA 22315, USA)

  • I-Lok Chang

    (Department of Mathematics (Retired), American University, Washington, DC 20016, USA)

  • Jatinder S. Mehta

    (Department of Mathematics (Retired), Temple University, Philadelphia, PA 19122, USA)

  • William H. Greene

    (Department of Economics, New York University, 44 West Fourth Street, 7-90 New York, NY 10012, USA)

  • Stephen G. Hall

    (Leicester University, Room Astley Clarke 116, University Road, Leicester LEI 7RH, UK
    Bank of Greece, 21 El. Venizelos Ave., 10250 Athens, Greece)

  • George S. Tavlas

    (Leicester University, Room Astley Clarke 116, University Road, Leicester LEI 7RH, UK
    Monetary Policy Council, Bank of Greece, 21 El. Venizelos Ave., Athens 10250, Greece)

Abstract

We develop a procedure for removing four major specification errors from the usual formulation of binary choice models. The model that results from this procedure is different from the conventional probit and logit models. This difference arises as a direct consequence of our relaxation of the usual assumption that omitted regressors constituting the error term of a latent linear regression model do not introduce omitted regressor biases into the coefficients of the included regressors.

Suggested Citation

  • P.A.V.B. Swamy & I-Lok Chang & Jatinder S. Mehta & William H. Greene & Stephen G. Hall & George S. Tavlas, 2016. "Removing Specification Errors from the Usual Formulation of Binary Choice Models," Econometrics, MDPI, vol. 4(2), pages 1-21, June.
    • Handle: RePEc:gam:jecnmx:v:4:y:2016:i:2:p:26-:d:71425
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    References listed on IDEAS

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    5. P.A.V.B. Swamy & George S. Tavlas & Stephen G. Hall, 2015. "On the Interpretation of Instrumental Variables in the Presence of Specification Errors," Econometrics, MDPI, vol. 3(1), pages 1-10, January.
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    1. P.A.V.B. Swamy & Jatinder S. Mehta & I-Lok Chang, 2017. "Endogeneity, Time-Varying Coefficients, and Incorrect vs. Correct Ways of Specifying the Error Terms of Econometric Models," Econometrics, MDPI, vol. 5(1), pages 1-17, February.

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    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C - Mathematical and Quantitative Methods
    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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