Fitting and interpreting Cragg's tobit alternative using Stata
In this article, I introduce the user-written command craggit, which simultaneously fits both tiers of Craggâ€™s (1971, Econometrica 39: 829â€“844) "two- tier" (sometimes called "two-stage" or "double-hurdle") alternative to tobit for corner-solution models. A key limitation to the tobit model is that the probability of a positive value and the actual value, given that it is positive, are determined by the same underlying process (i.e., the same parameters). Cragg proposed a more flexible alternative that allows these outcomes to be determined by separate processes through the incorporation of a probit model in the first tier and a truncated normal model in the second. Also, tobit is nested in craggit, making the latter a popular choice among "two-tier" models. In the article, I also present postestimation syntax to facilitate the understanding and interpretation of results.
Volume (Year): 9 (2009)
Issue (Month): 4 (December)
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- Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-844, September.
- Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, July.
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