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The Effect of Ignoring Heteroscedasticity on Estimates of the Tobit Model

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  • Charles Brown
  • Robert Moffitt

Abstract

We consider the sensitivity of the Tobit estimator to heteroscedasticity. Our single independent variable is a dummy variable whose coefficient is a difference between group means, and the error variance differs between groups. Heteroscedasticity biases the Tobit estimate of the two means in opposite directions, so the bias in estimating their difference can be significant. This bias is not monotonically related to the true difference, and is greatly increased if the limit observations are not available. Perhaps surprisingly, the Tobit estimates are sometimes more severely biased than are OLS estimates.

Suggested Citation

  • Charles Brown & Robert Moffitt, 1983. "The Effect of Ignoring Heteroscedasticity on Estimates of the Tobit Model," NBER Technical Working Papers 0027, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0027
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    References listed on IDEAS

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    1. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
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    3. Olsen, Randall J, 1982. "Distributional Tests for Selectivity Bias and a More Robust Likelihood Estimator," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 223-240, February.
    4. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
    5. Arabmazar, Abbas & Schmidt, Peter, 1981. "Further evidence on the robustness of the Tobit estimator to heteroskedasticity," Journal of Econometrics, Elsevier, vol. 17(2), pages 253-258, November.
    6. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258.
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