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The Effect of Ignoring Heteroscedasticity on Estimates of the Tobit Model

  • Charles Brown
  • Robert Moffitt

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.

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File URL: http://www.nber.org/papers/t0027.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0027.

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Date of creation: Jan 1983
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Handle: RePEc:nbr:nberte:0027
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  1. 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 223-40, February.
  2. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
  3. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
  4. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258.
  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. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, vol. 49(2), pages 505-13, March.
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