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Fitting and interpreting Cragg's tobit alternative using Stata

  • William J. Burke

    ()

    (Department of Agricultural, Food, and Resource Economics, Michigan State University)

In this article, I introduce the user-written command craggit, which simultaneously fits both tiers of Cragg’s (1971, Econometrica 39: 829–844) "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.

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Article provided by StataCorp LP in its journal Stata Journal.

Volume (Year): 9 (2009)
Issue (Month): 4 (December)
Pages: 584-592

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Handle: RePEc:tsj:stataj:v:9:y:2009:i:4:p:584-592
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