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New Wine in Old Bottles: A Sequential Estimation Technique for the LPM

Author

Listed:
  • Horrace, William C.

    () (affiliation not available)

  • Oaxaca, Ronald L.

    () (University of Arizona)

Abstract

The conditions under which ordinary least squares (OLS) is an unbiased and consistent estimator of the linear probability model (LPM) are unlikely to hold in many instances. Yet the LPM still may be the correct model or a good approximation to the probability generating process. A sequential least squares (SLS) estimation procedure is introduced that may outperform OLS in terms of finite sample bias and yields a consistent estimator. Monte Carlo simulations reveal that SLS outperforms OLS, probit and logit in terms of mean squared error of the predicted probabilities.

Suggested Citation

  • Horrace, William C. & Oaxaca, Ronald L., 2003. "New Wine in Old Bottles: A Sequential Estimation Technique for the LPM," IZA Discussion Papers 703, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp703
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    References listed on IDEAS

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    Cited by:

    1. Steven Ross & Yves Zenou, 2003. "Shirking, Commuting and Labor Market Outcomes," Working papers 2003-41, University of Connecticut, Department of Economics.
    2. Brännström, Lars & Vinnerljung, Bo & Hjern, Anders, 2015. "Risk factors for teenage childbirths among child welfare clients: Findings from Sweden," Children and Youth Services Review, Elsevier, vol. 53(C), pages 44-51.
    3. Ross, Stephen L. & Zenou, Yves, 2008. "Are shirking and leisure substitutable? An empirical test of efficiency wages based on urban economic theory," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 498-517, September.

    More about this item

    Keywords

    linear probability model; sequential least squares; consistency; Monte Carlo;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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