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OLS and Tobit Estimates: When is Substitution Defensible Operationally?

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  • Wilson, Clevo
  • Tisdell, Clement A.

Abstract

Field data are used to illustrate that, other things constant, regression results using Ordinary Least Squares (OLS) converge to Tobit estimates as the number of zeros in the regressand decrease. Tobit estimates are theoretically superior to OLS estimates when using censored data. However, if little difference exists between OLS and Tobit estimates, OLS may be operationally acceptable. OLS may even be optimal in a bounded rationality sense because the extra cost of using Tobit analysis may be less than the extra benefits from a very slight increase in accuracy.

Suggested Citation

  • Wilson, Clevo & Tisdell, Clement A., 2002. "OLS and Tobit Estimates: When is Substitution Defensible Operationally?," Economic Theory, Applications and Issues Working Papers 90519, University of Queensland, School of Economics.
  • Handle: RePEc:ags:uqseet:90519
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    1. Lo Duca, Marco & Nicoletti, Giulio & Vidal Martínez, Ariadna, 2016. "Global corporate bond issuance: What role for US quantitative easing?," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 114-150.
    2. repec:eee:ecofin:v:43:y:2018:i:c:p:54-70 is not listed on IDEAS
    3. Wilms, Philip & Swank, Job & de Haan, Jakob, 2018. "Determinants of the real impact of banking crises: A review and new evidence," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 54-70.
    4. Mottaleb, Khondoker Abdul & Mohanty, Samarendu & Hoang, Hoa Thi Khanh & Rejesus, Roderick M., 2013. "The effects of natural disasters on farm household income and expenditures: A study on rice farmers in Bangladesh," Agricultural Systems, Elsevier, vol. 121(C), pages 43-52.

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    Public Economics;

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