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Collinearity and Two-Step Estimation of Sample Selection Models: Problems, Origins, and Remedies

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  • Siu Fai Leung
  • Shihti Yu

Abstract

This paper investigates the origins of the collinearity problems encountered in the two-step estimation method for sample selection models. The analysis reveals several critical misconceptions and deficiencies in the literature. Remedies to the collinearity problems are proposed and evaluated. Monte Carlo experiments as well as an empirical example based on Mroz‘s (1987) data are used to illustrate the practical relevance and importance of the analysis.

Suggested Citation

  • Siu Fai Leung & Shihti Yu, 2000. "Collinearity and Two-Step Estimation of Sample Selection Models: Problems, Origins, and Remedies," Computational Economics, Springer;Society for Computational Economics, vol. 15(3), pages 173-199, June.
  • Handle: RePEc:kap:compec:v:15:y:2000:i:3:p:173-199
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    1. Elisabetta Strazzera & Margarita Genius & Riccardo Scarpa & George Hutchinson, 2003. "The Effect of Protest Votes on the Estimates of WTP for Use Values of Recreational Sites," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(4), pages 461-476, August.
    2. Bhat, Chandra R. & Eluru, Naveen, 2009. "A copula-based approach to accommodate residential self-selection effects in travel behavior modeling," Transportation Research Part B: Methodological, Elsevier, vol. 43(7), pages 749-765, August.
    3. Marra, Giampiero & Radice, Rosalba, 2013. "Estimation of a regression spline sample selection model," Computational Statistics & Data Analysis, Elsevier, vol. 61(C), pages 158-173.
    4. Yow-Jen Jou & Chien-Chia Huang & Hsun-Jung Cho, 2014. "A VIF-based optimization model to alleviate collinearity problems in multiple linear regression," Computational Statistics, Springer, vol. 29(6), pages 1515-1541, December.
    5. Elisabetta Strazzera & Margarita Genius, 2004. "The Copula Approach to Sample Selection Modelling: An Application to the Recreational Value of Forests," Working Papers 2004.73, Fondazione Eni Enrico Mattei.
    6. Costanigro, Marco & Kroll, Stephan & Thilmany, Dawn D., 2012. "Local, Organic, Conventional— Asymmetric Effects of Information and Taste on Label Preferences in an Experimental Auction," 2012 AAEA/EAAE Food Environment Symposium, May 30-31, Boston, MA 123199, Agricultural and Applied Economics Association.
    7. Susanne Elsas, 2013. "Pooling and Sharing Income within Households: A Satisfaction Approach," SOEPpapers on Multidisciplinary Panel Data Research 587, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Matloob Piracha & Stephane Mahuteau & Massimiliano Tani, 2010. "Selection Policy and Immigrants’ Remittance Behaviour," Studies in Economics 1003, School of Economics, University of Kent.
    9. Mikhail Zhelonkin & Marc G. Genton & Elvezio Ronchetti, 2016. "Robust inference in sample selection models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 78(4), pages 805-827, September.
    10. M. Genius & E. Strazzera, 2003. "The copula approach of sampling selection modelling: an application to the recreational value of forests," Working Paper CRENoS 200308, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    11. Tani, Massimiliano, 2012. "Does immigration policy affect the education--occupation mismatch? Evidence from Australia," Australian Bulletin of Labour, National Institute of Labour Studies, vol. 38(2), pages 111-141.
    12. William Fonta & H. Ichoku & Jane Kabubo-Mariara, 2010. "The effect of protest zeros on estimates of willingness to pay in healthcare contingent valuation analysis," Applied Health Economics and Health Policy, Springer, vol. 8(4), pages 225-237, July.
    13. Yang Li & Walter J. Mayer, 2007. "Impact of corrections for dynamic selection bias on forecasts of retention behavior," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(8), pages 571-582.
    14. Chen, Yiu Por (Vincent), 2015. "Fiscal Decentralization, Rural Industrialization, and Undocumented Labor Mobility in Rural China (1982-87)," IZA Discussion Papers 9024, Institute for the Study of Labor (IZA).
    15. Jorge Davalos & Monica Puoma Lambon-Quayefio & Samuel B. Manu, 2017. "An empirical assessment of the union facilitation effect in the Ghanaian labor market Author-Name: Nkechi S. Owoo," Working Papers PMMA 2017-08, PEP-PMMA.
    16. Emmanuel O. Ogundimu & Jane L. Hutton, 2016. "A Sample Selection Model with Skew-normal Distribution," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 43(1), pages 172-190, March.
    17. Erika Spissu & Abdul Pinjari & Ram Pendyala & Chandra Bhat, 2009. "A copula-based joint multinomial discrete–continuous model of vehicle type choice and miles of travel," Transportation, Springer, vol. 36(4), pages 403-422, July.
    18. Ying Yao & Makoto Tanaka, 2016. "Price offers of pharmaceutical procurement in China: evidence from Guangdong province," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(5), pages 563-575, June.

    More about this item

    Keywords

    sample selection; Heckman's two-step method; collinearity problem; remedy; Monte Carlo experiment; wage equation;

    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; Threshold Regression Models

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