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

  • William C. Horrace

    (Syracsue University)

  • Ronald L. Oaxaca

    (University of Arizona)

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, perhaps, justified for practical reasons. A sequential least squares (SLS) esti-mation 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. An empirical example is provided.

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File URL: http://128.118.178.162/eps/em/papers/0206/0206002.pdf
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Paper provided by EconWPA in its series Econometrics with number 0206002.

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Length: 43 pages
Date of creation: 19 Jun 2002
Date of revision: 11 May 2003
Handle: RePEc:wpa:wuwpem:0206002
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 43; figures: included. A new estimation technique for the LPM model
Contact details of provider: Web page: http://128.118.178.162

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  1. Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
  2. Lukashin, Youri Pavlovich, 2000. " Econometric Analysis of Managers' Judgements on the Determinants of the Financial Situation in Russia," Economic Change and Restructuring, Springer, vol. 33(1-2), pages 85-101.
  3. Janet Currie & Jonathan Gruber, 1995. "Health Insurance Eligibility, Utilization of Medical care, and Child Health," NBER Working Papers 5052, National Bureau of Economic Research, Inc.
  4. Amemiya, Takeshi, 1977. "Some Theorems in the Linear Probability Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 645-50, October.
  5. Robert W. Fairlie & William A. Sundstrom, 1999. "The Emergence, persistence, and recent widening of the racial unemployment gap," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(2), pages 252-270, January.
  6. James J. Heckman & James M. Snyder, Jr., 1996. "Linear Probability Models of the Demand for Attributes with an Empirical Application to Estimating the Preferences of Legislators," NBER Working Papers 5785, National Bureau of Economic Research, Inc.
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