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Estimation of a Tobit model with unknown censoring threshold

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  • Thomas Zuehlke

Abstract

Conventional wisdom suggests that only the estimated intercept is affected by imposition of a zero censoring threshold on a Tobit model. This is true for Heckman-Lee estimation. For maximum likelihood (ML) estimation, however, it is only true if the censoring threshold is known and is subtracted from the dependent variable. Failure to properly transform the dependent variable prior to ML estimation of a zero threshold Tobit model will generally bias the coefficient estimates. A long neglected topic is ML estimation of a Tobit model with common, but unknown, censoring threshold. This paper shows that the ML estimator of the censoring threshold is the minimum order statistic from the observed subsample, and that existing software for estimation of a zero-threshold Tobit model is easily adapted to include estimation of the censoring threshold.

Suggested Citation

  • Thomas Zuehlke, 2003. "Estimation of a Tobit model with unknown censoring threshold," Applied Economics, Taylor & Francis Journals, vol. 35(10), pages 1163-1169.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:10:p:1163-1169
    DOI: 10.1080/0003684032000081339
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    Cited by:

    1. Munch, Jakob R. & Nguyen, Daniel X., 2014. "Decomposing firm-level sales variation," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 317-334.
    2. Daniel OrdoƱez-Callamand & Mauricio Villamizar-Villegas & Luis F. Melo-Velandia, 2016. "Foreign Exchange Intervention Revisited: A New Way of Estimating Censored Models," Borradores de Economia 972, Banco de la Republica de Colombia.
    3. Richard T. Melstrom & Deshamithra H. W. Jayasekera, 2017. "Two-Stage Estimation to Control for Unobservables in a Recreation Demand Model with Unvisited Sites," Land Economics, University of Wisconsin Press, vol. 93(2), pages 328-341.
    4. Omori, Yasuhiro & Miyawaki, Koji, 2010. "Tobit model with covariate dependent thresholds," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2736-2752, November.
    5. Harman, Yvette S. & Zuehlke, Thomas W., 2007. "Nonlinear duration dependence in stock market cycles," Review of Financial Economics, Elsevier, vol. 16(4), pages 350-362.
    6. Colson Gregory & Corrigan Jay R & Rousu Matthew C., 2010. "The Impact of Perceived Prices on Willingness to Pay in Experimental Auctions," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 1-13, November.

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